Paddy Hope Industries is considering three different options for the purchase of a new commercial kitchen for their specialty cake and baking business. The options are as follows:
|Option 1||Option 2||Option 3|
|Annual Cash Flow||\$500||\$4,000||\$10,000|
Option 1 is to purchase a new oven for \$5,000, resulting in about \$500 in additional cash flows annually due to its more precise temperature system.
Option 2 is also to purchase a new oven, but Option 2 is actually a triple oven that can increase cash flows by \$4,000 per year due to increased production.
Option 3 is to purchase and install an entirely new commercial kitchen, which Paddy has estimated will yield additional cash flows of \$10,000 per year.
If Paddy's hurdle rate is 8% and the cash flows are estimated to occur for seven years, which option should the company choose using Net Present Value calculations?