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TWO LARGE OVENS THREE SMALL OVENS AT $1,250 EACH AT $2,500 EACH Original cost $3,750 $5,000 $ 750 (total) Labor per year in excess of larger models Cleaning/ maintenance $ 750 ($250 each) $ 400 ($200 each) Salvage value $ 750 ($250 each) $1,000 ($500 each)

TWO LARGE OVENS THREE SMALL OVENS AT $1,250 EACH AT $2,500 EACH Original cost $3,750 $5,000 $ 750 (total) Labor per year in excess of larger models Cleaning/ maintenance $ 750 ($250 each) $ 400 ($200 each) Salvage value $ 750 ($250 each) $1,000 ($500 each)

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
Your boss has told you to evaluate two ovens for
Tink-the-Tinkers, a gourmet sandwich shop. After some questioning
of vendors and receipt of specifications, you are assured
that the ovens have the attributes and costs shown in the following
table. The following two assumptions are appropriate:
1. The life of each machine is 5 years.
2. The company thinks it knows how to make 14% on investments
no more risky than this one.
a) Determine via the present value method which machine to tell
your boss to purchase.
b) What assumption are you making about the ovens?
c) What assumptions are you making in your methodology?
TWO LARGE OVENS THREE SMALL OVENS AT $1,250 EACH AT $2,500 EACH Original cost $3,750 $5,000 $ 750 (total) Labor per year in excess of larger models Cleaning/ maintenance $ 750 ($250 each) $ 400 ($200 each) Salvage value $ 750 ($250 each) $1,000 ($500 each)
Transcribed Image Text:TWO LARGE OVENS THREE SMALL OVENS AT $1,250 EACH AT $2,500 EACH Original cost $3,750 $5,000 $ 750 (total) Labor per year in excess of larger models Cleaning/ maintenance $ 750 ($250 each) $ 400 ($200 each) Salvage value $ 750 ($250 each) $1,000 ($500 each)
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