Brewton Freight Company owns a truck that cost $46,000. Currently, the truck\'s

Question

Brewton Freight Company owns a truck that cost $46,000. Currently, the truck's book value is $27,000, and its expected remaining useful life is five years. Brewton has the opportunity to purchase for $24,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $5,300 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 $11,000. Required Calculate the total relevant costs. Keep Old With New Total relevant costs Should Brewton replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Continue to use the old truck Replace the old truck

Explanation / Answer

1)

Brewton should replace the old truck with new as it will result in cost saving  

Keep Old Replace with new Annual operating cost 5300*5=26500 purchase cost 24000 Sale value of old truck -11000 Total Relevant cost 26500 13000

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