1. Barbarian Pizza is analyzing the prospect of purchasing an additional fire brick oven. The oven costs $200,000 and would be depreciated (straight-line to a salvage value of $120,000 in 10 years. The extra oven would increase annual revenues by $120,000 and annual operating expenses by $90,000. Barbarian's marginal tax rate is 25%. a. What would be the initial, operating, and terminal cash flows generated by the new oven? b. What is the payback period for the additional oven? C. Barbarian Pizza's RRR is 12%. What is the NPV of the additional oven? d. What is the IRR of the additional oven?
1. Barbarian Pizza is analyzing the prospect of purchasing an additional fire brick oven. The oven costs $200,000 and would be depreciated (straight-line to a salvage value of $120,000 in 10 years. The extra oven would increase annual revenues by $120,000 and annual operating expenses by $90,000. Barbarian's marginal tax rate is 25%. a. What would be the initial, operating, and terminal cash flows generated by the new oven? b. What is the payback period for the additional oven? C. Barbarian Pizza's RRR is 12%. What is the NPV of the additional oven? d. What is the IRR of the additional oven?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. Barbarian Pizza is analyzing the prospect of purchasing an additional
fire brick oven. The oven costs $200,000 and would be depreciated
(straight-line to a salvage value of $120,000 in 10 years. The extra oven
would increase annual revenues by $120,000 and annual operating
expenses by $90,000. Barbarian's marginal tax rate is 25%.
a. What would be the initial, operating, and terminal cash flows
generated by the new
oven?
b.
What is the payback period for the additional oven?
C.
Barbarian Pizza's RRR is 12%. What is the NPV of the additional
oven?
d.
What is the IRR of the additional oven?
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