Karen's Cookie Company is considering replacing its giant cookie mixer with the new one. The following data has been compiled to measure the function:
EXISTING NEW
Original Cost $8,000 $10,000
Annual Operating Cost $4,000 $2,200
Remaining Life 5 years 5 years
Disposal value now $3,000
a. What costs are relevant?
b. What costs are sunk?
c. What are the net cash flows, assuming Karen's Cookie Company purchases the new cookie mixer?