Question: Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost ( $ 60,000 ) when it

 Blue Sky Catering is considering whether to retain or replace its

Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost \\( \\$ 60,000 \\) when it was purchased nine years ago. It has a book value of \\( \\$ 6,000 \\). According to the mechanic who serviced the truck during its last oil change, the old truck has 4 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs \\( \\$ 68,000 \\) and has a 10 -year useful life, after which it will have no salvage value. The new truck is a little larger and would accommodate larger jobs, leading to an additional \\( \\$ 10,000 \\) per year in contribution margin. It would also have a refrigerated section that would reduce waste by \\( \\$ 600 \\) each year. As the truck will be new, repairs and maintenance costs will also decrease from \\( \\$ 2,300 \\) to \\( \\$ 1,400 \\) annually. The old truck can be sold for \\( \\$ 8,000 \\)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!