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An owner of flower shop purchased Delivery Van for $35.000 five years ago. At a time the Van was expected to provide 10 years of
An owner of flower shop purchased Delivery Van for $35.000 five years ago. At a time the Van was expected to provide 10 years of service and have trade-In value of $2,000 after these ten years of use. The annual operation and maintenance costs for this current Vanhas on average been $10,000 per year. The van is now only expected to be able to perform its delivery duties for another 3 years Because of the high operations cost of the current Van, the flower shop owner is now thinking about replacing it with a newlybrid delivery van that costs $49.000 and is projected to have annual operation and maintenance costs of $5,000 per year. While looking at the New Van, the Dealer offered to purchase his exsting Ven for $2,000. If the owner decides to keep the old Van for the remaining 3 years of its functional life he thinks he can sell the Vanter for $1,000 Assume the time value of money is 10% ycy. (P/F 10%.nl (A/F 10%.n) (F/A 10%.) (A/P 10%n) (P/A 10%) 2 0.8264 0.47619 2 1000 0.57619 1.7355 n 3 0.7513 0.30211 3.3100 0.40211 2.4869 4 0.6830 0.21547 4.6410 0.31547 3.1699 5 0.6209 0.16380 6.1051 0.26380 3.7908 6 0.5645 0.12961 7.7156 0.22961 4.3553 10 0.3855 0.06275 15.9374 0.16275 6.1446 New information is now available for the New Van. This new van is expected to have a life of 10 years and is anticipated to have a re-sale value of $4.000 at that time. Question: What Decision should the Flower Shop Owner Make? The owner should sell the Old Van and Purchase the New Van The owner should keep the Old Van but should re-evaluate that decision each year Both Vans provide equal service so it makes no difference which one is used Assume the time value of money is 10% ycy. n (P/F 10%.n) (F 10%.n) (F/A 10%) 2 0.8264 0.47619 2.1000 (N/P 10%.n) (P/A 10%.n) 0.57619 17355 3 0.7513 0.30211 3.3100 0.40211 2.4869 4 0,6830 0.21547 4.6410 0.31547 3.1699 5 0.6209 0.16380 6.1051 0.26380 3.7908 6 0.5645 0.12961 7.7156 0.22961 4.3553 10 0.3855 0.06275 15.9374 0.16275 6.1446 New information is now available for the New Van. This new van is expected to have a life of 10 years and is anticipated to have a re-sale value of $4,000 at that time. Question: What Decision should the Flower Shop Owner Make? The owner should sell the Old Van and Purchase the New Van The owner should keep the Old Van but should re-evaluate that decision each year, Both Vans provide equal service so it makes no difference which one is used. There is not enough information provided in the question to make this decision
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