Good Bread Bakery Installed an Oven Costing $100,000 on January

question 33

Essay

Good Bread Bakery installed an oven costing $100,000 on January 1 of the current year. Due to unexpected advances in technology, the equipment's value was reduced to $24,000 in only one week. The equipment is class 8 which has a CCA rate of 20% for tax purposes. The incremental costs of operating the oven over four years is $80,000 annually, excluding depreciation. A new replacement machine with all the new advances can be purchased now for $120,000. It also has a useful life of four years and can be operated for $30,000 a year, excluding depreciation. The company's tax rate is 40 percent. Neither oven has a salvage value at the end of the four years. Assume that the company will replace the oven (whichever one it chooses) after the four years.
Required:
a. Calculate the relevant cash flows using both a total project approach and a differential approach if the company's required rate of return is 10 percent.
b. What is the difference between the two methods?

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Definitions:

Dependent Variable

In research, the variable being tested and measured, whose changes are dependent on manipulations of the independent variable.

Team-Building Responsibilities

Entails activities and efforts undertaken by a group or organization to enhance social relations, define roles, and improve team dynamics and performance.

Group-Based Forums

Online or offline platforms where members of a group can discuss, share ideas, and collaborate on specific topics.

Cross-Functional Team

A group of people with different functional expertise working toward a common goal, typically involves members from varying departments or sectors within an organization.