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Please show all calculations and steps since we are doing it by hand without excel or a financial calculator. A company is considering replacing one
Please show all calculations and steps since we are doing it by hand without excel or a financial calculator.
A company is considering replacing one of its delivery trucks that it had purchased for $54,000 two years ago. This truck was estimated to have a six year life, a $12,000 salvage value, and it is being depreciated on a straight line basis. Its current market value is $26,000 now and is estimated to be $6,000 in four years. The annual cash operating costs of the old truck are expected to be $35,000 for each of the next 3 years and $40,000 in year 4. The new truck would cost $56,000. Annual cash operating costs are expected to be $25,000 per year over its expected life of 4 years. At that time, it is estimated that the new truck could be sold for $8,000. If the company uses a rate of return of 10% for capital budgeting decisions and the tax rate is 30%, should the company buy the new truck?
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