Forbes Festivities, a special events planner, uses a 10 year-old van to deliver decorations and supplies to
Question:
Forbes Festivities, a special events planner, uses a 10 year-old van to deliver decorations and supplies to customers. The company paid $19,000 for the van, which costs $2,900 per month to operate. In 2 years the van will need an extensive overhaul costing $5,400. Colin Forbes, the company's owner, is considering the purchase of a new delivery truck to replace the van. The truck he is looking at will cost $26,000 and has a useful life of 10 years. Based on estimated gas mileage and insurance, Colin calculates that the truck will cost $1,300 per month to operate. It will require a $2,900 overhaul in year 8. Based on current blue- book values, Colin could sell the old van today for $5,300. He estimates that he will be able to sell the new truck for $7,400 at the end of its 10 year life.
Identify the amount and timing of the cash flows relevant to Colin's decision to replace the delivery van.