Davis Pizza is analyzing the prospect of purchasing an additional fire-brick oven. The oven costs $200,000 and would be depreciated straight-line to a salvage value of $120,000 in ten years. The extra oven would increase annual revenue by $120,000 and annual operating expenses by $90,000. Davis' marginal tax rate is 40%. Show your calculations.

A. What would be the annual free-cash flow generated by the new oven?

B. What is the payback period for the additional oven?

C. Suppose the required rate of return is 12%, what is the net present value of the additional oven?

D. What is the profitability index for the additional oven?

E. What is the internal rate of return of the additional oven?

Answer rating: 100% (QA)

A To calculate the annual free cash flow generated by the new oven we need to consider the increment... View the full answer