The XYZ-Delivery Company has two options for its delivery truck. The first option is to purchase a new truck for $15,000. The new truck will have a useful life of 5 years and a residual value of $2,000. Operating costs for the new truck will be $200. The second option is to overhaul its existing truck. The cost of the overhaul will be $8,000. The overhauled truck will have a useful life of 5 years and a residual value of $0. Operating costs for the overhauled truck will be $600. The overhaul costs will be expensed immediately while the costs of the new truck will be depreciated for 5 years using straight line method to zero salvage value. Using XYZ's discount rate of 5%, which option is better and by what amount?
The XYZ-Delivery Company has two options for its delivery truck. The first option is to purchase a new truck for $15,000. The new truck will have a useful life of 5 years and a residual value of $2,000. Operating costs for the new truck will be $200. The second option is to overhaul its existing truck. The cost of the overhaul will be $8,000. The overhauled truck will have a useful life of 5 years and a residual value of $0. Operating costs for the overhauled truck will be $600. The overhaul costs will be expensed immediately while the costs of the new truck will be
Step by step
Solved in 2 steps with 2 images
