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OKC Restaurant has an industrial oven that is primarily used in making desserts. The oven...

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Accounting

OKC Restaurant has an industrial oven that is primarily used in making desserts. The oven is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are shown below. If the company overhauls its current oven, then it will be usable for nine more years. If, instead, a new oven is purchased, it will be used for nine years, after which it will be replaced. The new oven will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: image Clarion computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 10% discount rate. Q. Using the Net Present Value approach, assess whether Clarion Restaurant should upgrade the old oven or purchase the new one? (Show your calculation)

Current oven New oven Purchase cost new $8,000 $10,000 Remaining book value $4,500 Overhaul needed now $4,000 Annual cash operating costs $6,000 $ 4,500 Salvage value now $2,000 Salvage value eight years from now $1,000 $ 3,000

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