Answered: Model 127B Model 334A Initial…

Model 127B Model 334A Initial Investment $50,000 $80,000 Estimated Life 10 5 End of Life Salvage $10,000 $0 Annual Income $19,400 $26,000 Annual Expense $10,000 $6,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Octavia Bakery is planning to purchase one of two ovens. The expected cash flows for each oven are shown below. MARR is 8%/year. Solve, a. What is the discounted payback period for each investment? b. Which oven should Octavia Bakery purchase if they wish to minimize the DPBP?

Model 127B Model 334A
Initial Investment
$50,000
$80,000
Estimated Life
10
5
End of Life Salvage
$10,000
$0
Annual Income
$19,400
$26,000
Annual Expense
$10,000
$6,000

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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