Frank’s Marine Service purchased a forklift five years ago for $16,000. When it was purchased the forklift had an estimated useful life of 10 years and a residual value of $4,000.

The forklift can be sold now for $6,000. The operating cost for the forklift is $4,500 per year.

Frank is thinking about buying a newer forklift for $17,000. The newer model would have an estimated useful life of five years and a residual value of $7,000. The operating cost for the newer forklift would be $3,000 per year.

Required:

a. What are the relevant costs associated with the decision to replace the forklift?

b. Prepare a relevant cost schedule showing the advantage or disadvantage of buying the forklift.