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

question 90

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 oven

---

Definitions:

Groupthink

A problematic type of thinking that results from group members who are overly willing to agree with one another because of time pressure, stress, and low collective self-esteem.

Overall Mood

The prevailing emotional state or general emotional background that can influence a person's perception and behavior over a period of time.

Priorities

The tasks, activities, or goals considered more important and requiring attention before others.

Tasks

Specific pieces of work or activities assigned to someone or required to be completed as a part of a job or project.