1 Exercise 6-17A (Algo) Assetreplacement-opportunity cost LO 6-5Thornton Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $27,000, and its expected remaininguseful life is five years. Thornton has the opportunity to purchase for $26,000 a replacement truck that is extremely fuel efficient. Fuelcost 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 ofbeing in good condition, can be sold for only $18,000.RequiredCalculate the total relevant costs. Should Thornton replace the old truck with the new fuel-efficient model, or should it continue to usethe old truck until it wears out?Answer is complete but not entirely correct.Replace WithNew26,000Total relevant costsShould Thornton replace or continue the old truck?Keep Old$$36,000Replace the old truck.

Relevant costs are critical to making the right choices because financial planning involves…

Exercise 6-17A (Algo) Asset replacement-opportunity cost LO 6-5 Thornton Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $27,000, and its expected remaining seful life is five years. Thornton has the opportunity to purchase for $26,000 a replacement truck that is extremely fuel efficient. F ost 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 eing in good condition, can be sold for only $18,000. equired alculate the total relevant costs. Should Thornton replace the old truck with the new fuel-efficient model, or should it continue to L he old truck until it wears out? Answer is complete but not entirely correct. Keep Old Replace With New

Exercise 6-17A (Algo) Asset replacement-opportunity cost LO 6-5 Thornton Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $27,000, and its expected remaining seful life is five years. Thornton has the opportunity to purchase for $26,000 a replacement truck that is extremely fuel efficient. F ost 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 eing in good condition, can be sold for only $18,000. equired alculate the total relevant costs. Should Thornton replace the old truck with the new fuel-efficient model, or should it continue to L he old truck until it wears out? Answer is complete but not entirely correct. Keep Old Replace With New

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Exercise 6-17A (Algo) Asset
replacement-opportunity cost LO 6-5
Thornton Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $27,000, and its expected remaining
useful life is five years. Thornton 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 $18,000.
Required
Calculate the total relevant costs. Should Thornton replace the old truck with the new fuel-efficient model, or should it continue to use
the old truck until it wears out?
Answer is complete but not entirely correct.
Replace With
New
26,000
Total relevant costs
Should Thornton replace or continue the old truck?
Keep Old
$
$
36,000
Replace the old truck.

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