Opportunity cost
Lynch Freight owns a truck that cost $30,000. Currently, the truck’s book value is $18,000, and its expected remaining useful life is four years. Lynch has the opportunity to purchase for $26,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $5,000 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 $12,000.
Required
Should Lynch replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Explain.
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