Question
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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