Barbarian pizza is analyzing the prospect of purchasing an, Financial Management

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Barbarian pizza is analyzing the prospect of purchasing an

Barbarian 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 10 years. The extra oven would increase annual revenues by $120,000 and annual operating expenses by $90,000. Barbarian’s marginal tax rate is 25%. This should all be done in excel.

a. What would be the initial, operating, and terminal cash flows generated by the new oven?

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

c. Barbarian Pizza’s RRR is 12%. What is the NPV of the additional oven?

d. What is the IRR of the additional oven?

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