URGENT

QUESTION ONE ABC is currently operating a truck business. It is considering replacing of 15 tonne vehicle with a 2-tonne vehicle. Details of the respective vehicles are as follows: 1.5 tonne vehicle Estimates Remaining life Residual value Now Sh. 4 million In 4 years', time 0 Net cashflow Shs. 6 million p.a 4 years Estimates 7 years 2 tonne vehicle Estimated life Cost Residual value after 7 years operation Net cashflow Shs. 15 million Shs. 4 million 10 million p.a Other information is as follows: Net cashflows are to be regarded as received at the end of each year. The required rate of return is 10% per annum. Management is considering the following alternatives: Replace the 1.5 tonne vehicle with the 2-tonne vehicle now Retain the 1.5 tonne vehicle for 4 years and then replace it with the 2-tonne vehicle.| Advise the management as to which alternative it should adopt. All workings must be shown