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Diamond Inc. is considering replacing its existing deliverytruck with a new one. The new truck offers considerable fuel savings. The existing truck could be sold
Diamond Inc. is considering replacing its existing deliverytruck with a new one. The new truck offers considerable fuel savings. The existing truck could be sold immediately. Information about the existing and new trucks is as follows: Existing New Original cost $12,000 515,000 Annual operating expenses 53,500 52,500 Accumulated depreciation to date 57,000 Current salvage value 52,000 515,000 Remaining life 5 years 5 years Salvage value in 5 years 55,000 Annual depreciation expense and capital cost allowance 51,000 53,000 Required a. Ignore income tax and time value of money effects. Should Diamond Inc. replace the existing truck with a new one? b. Assume Diamond's discount rate is 10% and income tax rate is 20%. Should the company purchase the new truck
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