Reference no: EM132835855

Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 17,000 therms of natural gas for an entire year. A new, energy-efficient rotomold oven would operate on 15,000 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $250,000 to purchase a new, energy-efficient rotomold oven. She determines that the expected useful life of the new oven would be 10 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $10,000

Problem 1: What would an incremental analysis to look like to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 10 years will be $0.65 per therm?

Problem 2: Diane is concerned that natural gas prices might increase at a faster rate over the next 10 years. If the company projects that the average natural gas price of the next 10 years could be as high as $0.85 per therm, how might change from the previous question?