A gourmet cookie factory is considering the replacement of ten industrial ovens. The existing ovens were bought 2 years ago for $25,000 each and have a remaining useful life of 8 years. The firm does not expect to realize any return from scrapping the old ovens in 8 years, but if they were sold now, the firm would receive $18,000 per oven. Eight new ovens are expected to do the work of the ten old ones. The new ovens can be purchased for $40,000 each, have an estimated useful life of eight years and zero estimated salvage value. The new ovens are expected to economize on energy usage. For each of the next 8 years, annual pre tax operating cost savings will be $3,500 for each oven. Two operators will be eliminated at an annual pre tax cost savings of $28,000 per year each. The firm’s after-tax cost of capital is 18%. The relevant capital cost allowance rate is 10% and the firm's tax rate is 40% . Evaluated the desirability of replacing the industrial ovens.Show all calculations and work.

Answer rating: 100% (QA)

CCA calculation for Old oven Calculation per oven Purchase cost 25000 CCA 10 Previous Year 1 25000 UCC Prec Year 1 end 225000 CCA 10 Prev Year 2 22500 ... View the full answer