Mike Thomlinson is considering whether to replace one of his delivery trucks. He purchased the current delivery truck four years ago for $24,000, and it came with a three-year, 75,000-mile warranty. When purchased, the current truck had an estimated useful life of five years and a residual value of $2,000. Thomlinson uses the straight-line method for depreciation. The new truck would be identical to the current truck, except it would be new and would have the new truck warranty. The operating cost for the current truck is $4,000 for fuel, $23,200 for the driver’s salary, and maintenance cost is about $5,000 per year. If Thomlinson keeps the old truck, it will last another five years, but would require the $5,000 in maintenance each year. The current truck can be sold now for $4,000, or it can be sold in five years for $1,000. The new truck would cost $25,500, has an estimated useful life of five years, and can be sold at the end of the five years for $4,000. At the end of the warranty period, the new truck will require maintenance of $5,000 per year.
Required:

a. Prepare a schedule showing all the costs associated with the current truck.

b. Prepare a schedule showing all the costs associated with the new truck.

c. Prepare a schedule showing the relevant cost of the truck replacement decision and the favored alternative.

d. Discuss the qualitative factors that Thomlinson should consider.

e. If the old truck had an estimated useful life of five years when it was purchased, and it has already been used for four years, discuss the ramifications of using the truck for another five years.

f. Would you buy the new truck? Why or why not?