2. Bike Share Toronto knows that it has to continually purchase and replace their bicycle fleet. In January of 2016, their inception year, Bike Share purchased 100 bicycles at a price of $500 per bicycle. Each bicycle has a life of 10,000 kilometers and an expected market salvage value $50. The average bicycle is ridden 2,000 km per year. The accountant is internally using a Unit-of Production (with mileage) depreciation method. The bicycles fall under Class 9 of the Capital Cost Allowance Rates, and the government requires a Capital Cost allowance of 30% You, now at the start of 2018, are a junior engineer at a consulting company helping to advise on a replacement schedule, and have determined the following information: The market salvage value of the old fleet decreases at the same rate as the internal depreciation. Past year (2017) operating expenses for each bike were $200; they are expected to increase 10% per annum Price of the best available replacement option: $900 per bike Economic life of the best available replacement option: 14,000 km End of life salvage value of each of the replacement bicycles: $50 per bike Operating expenses for each replacement bicycle in the fleet: $150 and is expected to remain constant Bike Share's MARR is 8% * a) What will the undepreciated capital cost of the existing bicycle fleet be at the end of 2020? (5 marks) b) What is the internal depreciation charge that the accountant will make at the end of 2017? (5 marks) c) What is the minimum Annual Equivalent Cost of the replacement fleet (of 100 bicycles)? (5 marks) d) After how many years should Bike Share replace their existing fleet of bicycles with the new fleet? Use a marginal cost analysis to justify your answer. (5 marks) e) Suppose that the existing fleet is sold at the end of 2018 for $30,000 cash. Identify and enter figures into all relevant T accounts of the 2018 general ledger. (5 marks) 2. Bike Share Toronto knows that it has to continually purchase and replace their bicycle fleet. In January of 2016, their inception year, Bike Share purchased 100 bicycles at a price of $500 per bicycle. Each bicycle has a life of 10,000 kilometers and an expected market salvage value $50. The average bicycle is ridden 2,000 km per year. The accountant is internally using a Unit-of Production (with mileage) depreciation method. The bicycles fall under Class 9 of the Capital Cost Allowance Rates, and the government requires a Capital Cost allowance of 30% You, now at the start of 2018, are a junior engineer at a consulting company helping to advise on a replacement schedule, and have determined the following information: The market salvage value of the old fleet decreases at the same rate as the internal depreciation. Past year (2017) operating expenses for each bike were $200; they are expected to increase 10% per annum Price of the best available replacement option: $900 per bike Economic life of the best available replacement option: 14,000 km End of life salvage value of each of the replacement bicycles: $50 per bike Operating expenses for each replacement bicycle in the fleet: $150 and is expected to remain constant Bike Share's MARR is 8% * a) What will the undepreciated capital cost of the existing bicycle fleet be at the end of 2020? (5 marks) b) What is the internal depreciation charge that the accountant will make at the end of 2017? (5 marks) c) What is the minimum Annual Equivalent Cost of the replacement fleet (of 100 bicycles)? (5 marks) d) After how many years should Bike Share replace their existing fleet of bicycles with the new fleet? Use a marginal cost analysis to justify your answer. (5 marks) e) Suppose that the existing fleet is sold at the end of 2018 for $30,000 cash. Identify and enter figures into all relevant T accounts of the 2018 general ledger