Redox Company is considering replacing one of its delivery trucks. The truck in question was purchased two years ago at a cost of $47,000. At the time of purchase the truck was expected to have a $5,000 salvage value at the end of its six-year life. Given the use of straight-line depreciation, the truck has a current book value of $33,000. If sold today, the company could get $25,000 for the truck. It costs $28,000 per year to operate the existing truck. The new truck would cost $50,000 and would cost only $22,000 per year to operate. The new truck would be depreciated on a straight-line basis over its four-year useful life to its expected salvage value of $7,500. The companys require rate of return is 14%. Ignore income taxes.

Required:

1) Without considering the time value of money, determine whether the existing truck should be replaced. Show your work and be specific about your recommendation.

2) Use Net Present Value method and determine whether the existing truck should be replaced. Show your work and be specific about your recommendation.