Biology Forums - Study Force

Bend Manufacturers is considering investing in a new truck that will be used to deliver its custom-made furniture. The truck currently used by Bend cost the company $72,000 eight years ago.  Two years from now, the company anticipates spending $20,000 to overhaul the old truck, at which time the truck could be used for an additional 10 years. The old truck costs $8,000 per month in gas, insurance, and other costs to operate. Ron Shop, Controller of Bend Manufacturers, is considering the purchase of a new truck which will cost $100,000 and which has a useful life of 10 years. The new truck will only cost $4,800 per month to operate but will require an overhaul 8 years from now that is expected to cost $8,000. Ron believes the old truck can be sold for $16,000.  If the new truck is purchased, he estimates that the new truck could be sold for $28,000 at the end of its useful life. Which of the following is not a relevant cash flow in the decision to replace the truck?

▸ $3,200 per month in operating cost savings

▸ $72,000 purchase price of old truck

▸ $20,000 overhaul avoided on old truck

▸ $16,000 salvage value of old truck

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