Duddy Kravitz owns the Saint Viateur Bagel store. His world famous bagels are hand rolled, boiled and then baked in a wood$-$burning oven. Uncle Benjy thinks that the wood oven should be replaced by a modern gas oven, which would reduce costs by $$0\mathrm{.}02$ per bagel. Duddy is considering Uncle Benjy's idea. Last week, Duddy hired a plumber $($for $$500)$ to explore the feasibility of running a gas pipe into the store. The current oven was purchased thirty years ago for $$20,000.$ It could be sold today for $$5,000$ and will be worth $$3,000$ in two years. A new oven costs $$105,000$ today and could be sold for $$55,000$ in two years. Assume that investment cash flows occur immediately, and that sales and production costs occur at the end of the year. The tax rate is $35\%.$ What is the incremental initial cash flow for the project if he replaces the oven?

Answer rating: 100% (QA)

To calculate the incremental initial cash flow for the project we need to consider the relevant cash ... View the full answer