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Author Question: Duddy Kravitz owns the Saint Viateur Bagel store. His world famous bagels are hand rolled, boiled in ... (Read 39 times)

storky111

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Duddy Kravitz owns the Saint Viateur Bagel store. His world famous bagels are hand rolled, boiled in honey-water and baked in a wood-burning oven. The store sells 5,000 bagels per day and is open 365 days of the year. The bagels are so popular that, on weekends, the customer line-up runs half-way down the block. Uncle Benjy thinks that the wood-fired oven should be replaced by a modern gas oven, which would reduce costs by $0.02 per bagel. A new oven would cost $105,000. Duddy is considering Uncle Benjy's idea, but he only plans to be in business for another two years. The bagels are sold for $0.75 each. The cost of producing each bagel with the wood-burning oven is $0.50 which includes labour and raw materials. The current oven was purchased thirty years ago for $20,000. It could be sold today for $5,000 and will be worth $3,000 in two years. A new oven costs $105,000 today and could be sold for $55,000 in two years. Duddy's cost of capital is 9%. Assume that investment cash flows occur immediately, and that sales and production costs occur at the end of the year. Assume that both ovens are classified as 10-year property and depreciated using the MACRS system. The tax rate is 35%. What is the cash flow from the replacement project for year 1? 

MACRS Depreciation Rates
Year5-Year7-Year10-Year
120.00%14.29%10.00%
232.00%24.49%18.00%
319.20%17.49%14.40%
411.52%12.49%11.52%
511.52%8.93%9.22%

◦ $10,500
◦ $16,900
◦ $26,000
◦ $27,400
◦ $36,500


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Marked as best answer by storky111 on Apr 25, 2021

firehawk60

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storky111

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Reply 2 on: Apr 25, 2021
Excellent


sultana.d

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Reply 3 on: Yesterday
Wow, this really help

 

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