Baird Freight Company owns a truck that cost $31,000. Currently, the truck's book value is $24,000, and its expected remaining useful life is five years. Baird 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 $5,500 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 $14,000.

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?

Answer rating: 100% (QA)

Old Truck Book value 24000 Expected remaining useful life 5 years Salvage value 14000 Ann... View the full answer