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Lagoon Inc. is considering replacing its old delivery van with a new delivery van. Estimates for the next three years are as follows: Old Van

Lagoon Inc. is considering replacing its old delivery van with a new delivery van. Estimates for the next three years are as follows:

Old Van

New Van

Average annual sales

$450,000

$475,000

Annual operating costs

80,000

65,000

Original costs of old van

90,000

--

Remaining book value of old van

8,000

--

List price of new van

--

110,000

Remaining life

3 years

--

Expected life

--

3 years

Disposal value now

$10,000

---

Disposal value in 3 years

$ nil

$ nil

Required:

Based strictly on the financial information presented above, should the company Lagoon replace the delivery van? (Ignore time value of money).

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