When to Replace an Asset: Burt's Pizzas Is Considering Whether

question 46

Multiple Choice

When to replace an asset: Burt's Pizzas is considering whether to purchase an oven. Burt's calculates that its current oven generates $4,000 of cash flow per year. A new oven would cost $15,000 and would provide cash flow of $6,000 per year for six years. What is the equivalent annual cash flow for the new oven (round to the nearest dollar) , and should Burt's purchase the new oven? Assume the cost of capital for Burt's is 12 percent.

• A) $2,352, do not purchase the oven
• B) $6,000, purchase the oven
• C) $9,668, purchase the oven
• D) $24,668, purchase the new tractor

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Definitions:

Referent Power

A form of influence based on the leader’s likability and the followers’ desire to identify with or emulate them.

Legitimate Power

Power that is recognized and accepted by individuals due to the position or role of the person holding it.

Achievement Of Organizational Goals

The successful fulfillment or reaching of objectives set by an organization through collective efforts and strategies.

Political Behavior

Actions by individuals or groups within an organization that are aimed at influencing the distribution of advantages and disadvantages.