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. Two marks for the correct answer (purchase or overhaul), and eight marks for correct calculations. Clearly label your items and calculations for marks on this question.