Question
Forbes Festivities, a special events planner, uses a 10; year-old van to deliver decorations and supplies to customers. The company paid $19,000 for the van,
Forbes Festivities, a special events planner, uses a 10; year-old van to deliver decorations and supplies to customers. The company paid $19,000 for the van, which cost $2,800 per month to operate. In 2 years the van will need an extensive overhaul costing $5,100. Colin Forbes, the company's owner, is considering the purchase of a new delivery truck to replace the van. The truck he is looking at will cost $26,000 and has a useful life of 10 years. Based on estimated gas mileage and insurance, Colin calculates that the truck will cost $1,300 per month to operate. It will require a $2,800 overhaul in year 8. Based on current blue-book values, Colin could sell the old van today for $5,100. He estimates that he will be able to sell the new truck for $7,900 at the end of its 10 year life.
Identify the amount and timing of the cash flows relevant to Colin's decision to replace the delivery van.
Cash Flow Type | Cash Flow Amount | Time Period |
Purchase Price | ||
Operating Cost Savings | ||
Overhaul Avoided on old van | ||
Overhaul on new van | ||
Salvage of old van | ||
Salvage of new van |
Time period options: (years) 0, 2, 3, 5, 6, 7, 8, 10, 1-9, 1-10
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