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Schwartz Inc. is deciding whether to replace its existing delivery truck with a new one. The new truck offers considerable fuel savings. Another advantage of the new truck is that it can haul 105% of the existing truck's payload. Projected annual revenue from cargo hauling with the existing truck is $200,000. There is projected excess demand for cargo hauling. The existing truck could be sold at the end of one year for $40,000. Other information about the existing and new trucks is as follows: Existing New $120,000 $150,000 $35,000 $30,000 $60,000 Original cost Annual fuel and other operating expenses Accumulated depreciation to date Remaining life Salvage value in 5 years 5 years $0 0 5 years $50,000 Required: Assume the discount rate for Schwartz is 8% and its income tax rate is 20%. Should the company purchase the new truck?

Schwartz Inc. is deciding whether to replace its existing delivery truck with a new one. The new truck offers considerable fuel savings. Another advantage of the new truck is that it can haul 105% of the existing truck's payload. Projected annual revenue from cargo hauling with the existing truck is $200,000. There is projected excess demand for cargo hauling. The existing truck could be sold at the end of one year for $40,000. Other information about the existing and new trucks is as follows: Existing New $120,000 $150,000 $35,000 $30,000 $60,000 Original cost Annual fuel and other operating expenses Accumulated depreciation to date Remaining life Salvage value in 5 years 5 years $0 0 5 years $50,000 Required: Assume the discount rate for Schwartz is 8% and its income tax rate is 20%. Should the company purchase the new truck?

FINANCIAL ACCOUNTING
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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Schwartz Inc. is deciding whether to replace its existing delivery truck with a new one. The new truck offers considerable fuel savings. Another advantage of the new truck is that it can haul 105% of the existing truck's payload. Projected annual revenue from cargo hauling with the existing truck is $200,000. There is projected excess demand for cargo hauling. The existing truck could be sold at the end of one year for $40,000. Other information about the existing and new trucks is as follows: Original cost Annual fuel and other operating expenses Accumulated depreciation to date Remaining life Salvage value in 5 years Existing New $120,000 $150,000 $35,000 $30,000 $60,000 5 years $0 0 5 years $50,000 Required: Assume the discount rate for Schwartz is 8% and its income tax rate is 20%. Should the company purchase the new truck?
Transcribed Image Text:Schwartz Inc. is deciding whether to replace its existing delivery truck with a new one. The new truck offers considerable fuel savings. Another advantage of the new truck is that it can haul 105% of the existing truck's payload. Projected annual revenue from cargo hauling with the existing truck is $200,000. There is projected excess demand for cargo hauling. The existing truck could be sold at the end of one year for $40,000. Other information about the existing and new trucks is as follows: Original cost Annual fuel and other operating expenses Accumulated depreciation to date Remaining life Salvage value in 5 years Existing New $120,000 $150,000 $35,000 $30,000 $60,000 5 years $0 0 5 years $50,000 Required: Assume the discount rate for Schwartz is 8% and its income tax rate is 20%. Should the company purchase the new truck?
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