Janet's Bakery is thinking about replacing the convection oven with a new, more energy-etficient model. Information related to the old and new ovens follows: Old Oven New Oven $21,000 Original cost Accumulated depreciation $40,000 Not acquired yet Not acquired yet 6,000 $15,000 $10,000 Book value Current disposal value Not acquired yet $2,000 Not applicable $12,000 7 years 2 years 5 years SO Installation cost $5,000 5 years O years 5 years $0 Annual operating cost Useful life Current age Remaining useful life Terminal disposal value (in 5 years) Ignore the effect of income taxes and the time value of money.
Janet's Bakery is thinking about replacing the convection oven with a new, more energy-etficient model. Information related to the old and new ovens follows: Old Oven New Oven $21,000 Original cost Accumulated depreciation $40,000 Not acquired yet Not acquired yet 6,000 $15,000 $10,000 Book value Current disposal value Not acquired yet $2,000 Not applicable $12,000 7 years 2 years 5 years SO Installation cost $5,000 5 years O years 5 years $0 Annual operating cost Useful life Current age Remaining useful life Terminal disposal value (in 5 years) Ignore the effect of income taxes and the time value of money.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Is there any conflict between the decision model and the incentives of the manager who has purchased the “old” oven and is considering replacing it only two years later?
![Janet's Bakery is thinking about replacing the convection oven
with a new, more energy-etficient model. Information related to the old and new ovens follows:
Old Oven
New Oven
$21,000
Original cost
Accumulated depreciation
$40,000
Not acquired yet
Not acquired yet
6,000
$15,000
$10,000
Book value
Current disposal value
Not acquired yet
$2,000
Not applicable
$12,000
7 years
2 years
5 years
SO
Installation cost
$5,000
5 years
O years
5 years
$0
Annual operating cost
Useful life
Current age
Remaining useful life
Terminal disposal value (in 5 years)
Ignore the effect of income taxes and the time value of money.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3012f861-4236-4081-9227-f759eb570cce%2F2d9eda06-b167-435c-bf29-c38f38edfc1e%2Fc7efle.jpeg&w=3840&q=75)
Transcribed Image Text:Janet's Bakery is thinking about replacing the convection oven
with a new, more energy-etficient model. Information related to the old and new ovens follows:
Old Oven
New Oven
$21,000
Original cost
Accumulated depreciation
$40,000
Not acquired yet
Not acquired yet
6,000
$15,000
$10,000
Book value
Current disposal value
Not acquired yet
$2,000
Not applicable
$12,000
7 years
2 years
5 years
SO
Installation cost
$5,000
5 years
O years
5 years
$0
Annual operating cost
Useful life
Current age
Remaining useful life
Terminal disposal value (in 5 years)
Ignore the effect of income taxes and the time value of money.
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