Bravo Baking Co is considering replacing an old freezer with a larger unit to freeze some of its bread. The new unit has a larger capacity and Bravo estimates it can produce and sell more bread each year. From these additional sales the after tax cash flow is expected to be $4,000. In addition to more sales, the new freezer will save $1,200 in electricity each year. However, the new freezer will cost and additional $2000 each year for maintenance. The cost of the new unit is $25000 and it is expected to last 10 years. The salvage value at the end of its life is $6,000. The old unit is fully depreciated and can be disposed at cost. Determine the net present value of purchasing the new freezer using a required rate return of 14%. Should Bravo purchase the freezer?
Note: Use PV Tables found in the PV tabs in the workbook. Be sure to enter 4 decial places. Also, be sure to show costs as negative values.
Cash Flow PV Factors PV Amounts
Cost of new registration unit?
After tax cash flow?
Annual electricity savings?
Additional annual maintence costs?
Amount collected from disposal of unit?
Net present value?
Based of your analysis what is your recomendation regarding the new freezer? Explain
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