Question Details

3) Splenda specializes in the making S'mores cakes . The cost ofmaking the S'mores is as mentioned in the table. Recently Splendahas been facing a lot of problems with the oven as some of itschocalate chips are not sticking to the cracker and hence they haveto scrap them. This accounts to 10% of the S'mores actually made. Avendor feels that installation of a new oven which has just beenintroduced in the market is the solution to this problem. He saysthat installation of this oven with temperature sensors that wouldhave a one time cost $90,000 in year 0 will completely reduce theloss due to the defective items. Splenda operates 40 hours a weekfor 48 weeks in a year. It can sell a box of S'mores for $ 15.

Assuming Splenda can sell all the cakes it makes which optionwould you recommend for a 10 year life to Splenda if the cost ofcapital for Splenda is 6%.