Kahnemann Kookies Is Evaluating the Replacement of an Old Oven

question 119

Essay

Kahnemann Kookies is evaluating the replacement of an old oven with a new,more energy efficient model.The old oven cost $50,000,is 5 years old and is being depreciated over a useful life of 10 years to a value of $0.00.The new oven costs $60,000 and will be depreciated over 5 years with no salvage value.Kahnemann uses straight-line depreciation,and its tax rate is 40%.If the old oven is sold for $10,000,compute the net cost of the new oven.

Identify the appropriate discount rate for different projects based on their risk profiles.

Explain the concept of decision trees in analyzing project outcomes.

Understand how market risk and project specific risk influence the cost of capital.

Describe the impact of ignoring risk in capital budgeting decisions.