Bakery Purchase Assignment

3. Julian's Bakery is thinking about replacing the convection oven with a new, more energy-efficient model. Information related to the old and new ovens follows: (Click the icon to view the information related to the old and new ovens.) Read the requirements Requirement 1 and 2. Which of the costs and benefits above are relevant to the decision to replace the oven? What information is irrelevant? Why is it irrelevant? Begin by determining whether each item is relevant or irrelevant for this decision. If an item is irrelevant, select why it is irrelevant. (Make a selection for each item in the Old Oven and New Oven columns. In the “Why Irrelevant” column, only make a selection for irrelevant items. For relevant items, leave the box blank, do not select a label.) Old Oven (1) (4) New Oven (2) (5) Why Irrelevant (3) (6) N (7) (9) Original cost Accumulated depreciation Book value Current disposal value Installation cost Annual operating cost Terminal disposal value (11) T (12) (14) (10) (13) (16) (19) (15) L L C (17) (20) L C (18) (21)

Requirement 3. Should Julian's Bakery purchase the new oven? Provide support for your answer. Begin by selecting the relevant items and then entering the appropriate cost in each respective column. Be sure to total the relevant costs. (If a box is not used in the table, leave the box empty: do not enter a zero. Use a minus sign or parentheses for any costs.) New oven Keep old oven Total Total (24) 1125) Total relevant costs Based on the calculations above, Julian's Bakery (26) – – purchase the new oven. Requirement 4. Is there any conflict between the decision model and the incentives of the manager who has purchased the “old” oven and is considering replacing it only two years later? |(27) |(28) Requirement 5. At what purchase price would Julian's Bakery be indifferent between purchasing the new oven and continuing to use the old oven? Julian's Bakery would be indifferent between purchasing the new oven and keeping the old oven at a purchase price of $ D 1: Data Table Old Oven New Oven Original cost $ 28,000 $ 45,000 Accumulated depreciation $ 6,300 Not acquired yet Book value $ 24,000 Not acquired yet Current disposal value $ 18,000 Not acquired yet Installation cost Not applicable $ 2,700 Annual operating cost 17,000 $ 11,000 Useful life 10 years 7 years Current age 3 years O years Remaining useful life 7 years Terminal disposal value in 7 years) $ 0 $ Ignore the effect of income taxes and the time value of money. 2: Requirements 1. Which of the costs and benefits above are relevant to the decision to replace the oven? 2. What information is irrelevant? Why is it irrelevant? 3. Should Julian's Bakery purchase the new oven? Provide support for your answer. 4. Is there any conflict between the decision model and the incentives of the manager who has purchased the “old” oven and is considering replacing it only two years later? 5. At what purchase price would Julian's Bakery be indifferent between purchasing the new oven and continuing to use the old oven? .