Problem 1

Taper Corporation is considering trading a truck with a book value of SAR 85,000 with an estimated five-year life for a new truck that would cost SAR 200,000. The old truck could be sold for SAR 75,000. The new truck has a seven-year life with no residual value. The new truck would reduce annual operating costs by SAR 20,200 per year.

Required:

1. Prepare a differential analysis on whether to continue with the old machine (Alternative 1) or purchase the new machine (Alternative 2).