Flame Limited, a private fire department, is trying to decide whether to overhaul an older fire truck or sell it and buy a new one. State how much better off Flame will be if they choose your alternative.

Use a 10 year life expectancy for both alternatives. Data follow (you decide which data is relevant) New Truck Overhaul old truck Annual revenues $100,000 $70,000 Annual cash operating costs 20,000 28,000 Cost of new truck $155,000 Depreciation expense for new truck 12,500 per year Cost of overhaul of old truck 60,000 Current depreciation expense of old truck 3,000 per year Residual value of new truck in 10 years 30,000 Value of old truck if sold now 12,000 Residual value of old truck in 10 years $ 0

Required: Ignoring the time value of money, determine if Flame Ltd. should purchase the new truck or overhaul the old one.