Sam, a bakery manager, replaced the convection oven just six months ago.Today, Commercial Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses.Sam is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased.Selected information about the two ovens is given below:
Required:
a.What costs are sunk?
b.What costs are relevant?
c.What are the net cash flows over the next 5 years assuming the bakery purchases the new convection oven?
d.What other items should Sam, as manager of the bakery, consider when making this decision?

Question

Sam, a bakery manager, replaced the convection oven just six months ago.Today, Commercial Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses.Sam is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased.Selected information about the two ovens is given below:
  Required:
a.What costs are sunk?
b.What costs are relevant?
c.What are the net cash flows over the next 5 years assuming the bakery purchases the new convection oven?
d.What other items should Sam, as manager of the bakery, consider when making this decision?

Quizplus · Accepted Answer

The Answer of Sam, a bakery manager, replaced the convection oven just six months ago.Today, Commercial Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses.Sam is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased.Selected information about the two ovens is given below:
  Required:
a.What costs are sunk?
b.What costs are relevant?
c.What are the net cash flows over the next 5 years assuming the bakery purchases the new convection oven?
d.What other items should Sam, as manager of the bakery, consider when making this decision?

Sam, a Bakery Manager, Replaced the Convection Oven Just Six