Lugano's Pizza Parlor
Lugano's Pizza Parlor is considering the purchase of a large oven and related equipment for mixing and baking "crazy bread."
The oven and equipment would cost $170,000 delivered and installed. It would be usable for about 10 years, after which it would have a 10% scrap value. The following additional information is available:
Required:
Prepare a contribution format income statement showing the net operating income each year from production and sale of the crazy bread.
Compute the simple rate of return for the new oven and equipment.
If Mr. Lugano accepts any project with a simple rate of return greater than 10%, will he acquire the oven?
Compute the payback period on the oven and equipment
If Mr. Lugano accepts any investment with a payback period of less than seven years, will he acquire the oven?