Baird Freight Company owns a truck that cost $46,000. Currently, the truck’s book value is $26,000,...
Baird Freight Company owns a truck that cost $46,000. Currently, the truck’s book value is $26,000, and its expected remaining useful life is five years. Baird has the opportunity to purchase for $23,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $5,500 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $16,000. Required Calculate the total relevant costs. Should Baird replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
| Keep Old | Replace With New | ||
| Total relevant costs | |||
| Should Baird replace or continue with the old truck? |
Homework Answers
| Keep old | Replace with new | |
| Total relavent costs |
= additional fuel cost + Opportunity cost = (5,500*5) + 16,000 = 43,500 |
= Purchase price of new = 23,000 |
The company should replace
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Baird Freight Company owns a truck that cost $46,000. Currently,
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