Speedy Pty Ltd operates a suburban delivery business. It is considering the replacement of a 2-ton van with a 3-ton van. Details of the respective vehicles are as follows:

2-ton truck

Remaining life 3 years

Salvage Value now $4,000

Salvage Value in 3 years $0

Written down value now $6,600

Annual Depreciation for tax purposes $2,200

Annual net cash flows before tax$12,000

3-ton truck

Estimated life 4 years

Salvage Value in 4 years $2,000

Annual Depreciation for tax purposes $6,000

Cost $24,000

Annual net cash flows before tax $20,000

The after-tax cost of capital 10%pa and the tax rate is 30%. Management is considering the following alternatives: Replace now or Replace in three years. Which alternative should be accepted? Explain your decision.