iSooky has a spotter truck with a book value of $40,000 and a remaining useful life...
iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $32,000. iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck. The total increase or decrease in income by replacing the current spotter truck with the new truck (ignoring the time value of money) is:
Multiple Choice
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$31,000 decrease
-
$36,000 decrease
-
$31,000 increase
-
$120,000 decrease
-
$36,000 decrease
-
$36,000 increase
-
$120,000 decrease
-
$36,000 increase
Homework Answers
Total saving in variable manufacturing costs = 25000*5 = $125,000
Net Cash outflow for purchasing the truck = Cash outflow for new truck - Sale proceeds from old truck
= $120000 - 31000
= $89,000
Total increase (decrease) in income by replacing the current spotter truck with the new truck = Total saving in variable manufacturing costs - Net Cash outflow for purchasing the truck
= $125,000 - 89,000
= $36,000 Increase
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iSooky has a spotter truck with a book value of $40,000 and a
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Sooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $32,000. Sooky can purchase a new spotter truck for $120,000 and receive $31.000 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,000 per year over...
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