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Purchasing a large oven and related equipment for mixing and baking crazy bread is being considered by Perottis Pizza.

Purchasing a large oven and related equipment for mixing and baking "crazy bread is being considered by Perotti's Pizza. The oven and equipment would cost $144,000 delivered and installed. It would be usable for about 20 years, after which it would have a 10% scrap value. The following additional information is available a. Perotti, the owner, estimates that purchase of the oven and equipment would allow the pizza parlour to bake and sell 72,000 loaves of crazy bread each year. The bread sells for $1.25 per loaf b, The cost of the ingredients in a loaf of bread is 40% of the selling price. Perotti estimates that other costs each year associated with the bread would be as follows: salaries, $23,000; utilities, $8,000; and insurance, S5,000 cost (Ignore income taxes.) c. The pizza parlour uses straight-line depreciation on all assets, deducting salvage value from original d, Perotti would like all projects to provide a return of at least 6%. Required: 1. Prepare a contribution format income statement showing the operating income each year from production and sale of the crazy bread. Contribution Format Income Statement Sales revenue ess: Cost of ingredients Contribution margin Less operating expenses Utilities Salaries Insurance Depreciation Total operating expenses Operating income 2-a. Compute the simple rate of return for the new oven and equipment. (Round your answer to 2 decimal places.) imple rate of return 2-b. Will this return be acceptable to Perotti? Yes O No 3-a. Compute the payback period on the oven and equipment year(s) 3.b. If any of the equipment has less than a nine-year payback, will Perotti purchase it? O No Yes

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