Scarlett is considering the purchase of a new Wolf gas range by Sub-Zero Group, Inc. to increase the quality of the food served in her restaurant. It will also enhance the cooking experience for her and her chefs, as they won't have to fuss with the finicky electric burners they currently use. However, the new range is expensive. It will cost $9,920 to buy and properly install. On the upside, it should last for at least 7 years, at which time Scarlett may consider trading it in for another new range. While her operating costs will not decrease as a result of this purchase, Scarlett will be able to generate additional gross margin of at least $1,510 in the first year. After that, she expects the additional gross margin to grow by 10% each year for the next 4 years, at which point it will become stable for the remainder of the 7- year life. She believes the new range will be worth $1,010 at the end of this 7-year period. Her current range can be salvaged today for $250. Click here to view the factor table (a) Calculate the discounted payback period for this range (using before-tax cash flows), assuming Scarlett's cost of capital averages 6% (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 15.25.)
Scarlett is considering the purchase of a new Wolf gas range by Sub-Zero Group, Inc. to increase the quality of the food served in her restaurant. It will also enhance the cooking experience for her and her chefs, as they won't have to fuss with the finicky electric burners they currently use. However, the new range is expensive. It will cost $9,920 to buy and properly install. On the upside, it should last for at least 7 years, at which time Scarlett may consider trading it in for another new range. While her operating costs will not decrease as a result of this purchase, Scarlett will be able to generate additional gross margin of at least $1,510 in the first year. After that, she expects the additional gross margin to grow by 10% each year for the next 4 years, at which point it will become stable for the remainder of the 7- year life. She believes the new range will be worth $1,010 at the end of this 7-year period. Her current range can be salvaged today for $250. Click here to view the factor table (a) Calculate the discounted payback period for this range (using before-tax cash flows), assuming Scarlett's cost of capital averages 6% (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 15.25.)
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 6PB: Karens Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and...
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Transcribed Image Text:Scarlett is considering the purchase of a new Wolf gas range by Sub-Zero Group, Inc. to increase the quality of the food served in her
restaurant. It will also enhance the cooking experience for her and her chefs, as they won't have to fuss with the finicky electric
burners they currently use.
However, the new range is expensive. It will cost $9,920 to buy and properly install. On the upside, it should last for at least 7 years, at
which time Scarlett may consider trading it in for another new range. While her operating costs will not decrease as a result of this
purchase, Scarlett will be able to generate additional gross margin of at least $1,510 in the first year. After that, she expects the
additional gross margin to grow by 10% each year for the next 4 years, at which point it will become stable for the remainder of the 7-
year life. She believes the new range will be worth $1,010 at the end of this 7-year period. Her current range can be salvaged today for
$250.
Click here to view the factor table
(a)
Calculate the discounted payback period for this range (using before-tax cash flows), assuming Scarlett's cost of capital averages
6% (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g.
15.25.)
Discounted payback period
years:
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