Roadrunner Freight Company owns a truck that cost $42,000. Currently, the truck’s book value is $24,000, and its expected remaining useful life is four years. Roadrunner has the opportunity to purchase for $31,200 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,000 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 $14,400.RequiredCalculate the total relevant costs. Should Roadrunner replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?

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Asked Nov 15, 2019
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Roadrunner Freight Company owns a truck that cost $42,000. Currently, the truck’s book value is $24,000, and its expected remaining useful life is four years. Roadrunner has the opportunity to purchase for $31,200 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,000 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 $14,400.

Required
Calculate the total relevant costs. Should Roadrunner replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?

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Step 1

Calculation of rel...

Relevant cost Realizable value +(Fuel cost per yearx Rem aining useful life)
S14,400+($6,000 x 4)
$14, 400+$24,000
=$38, 400
X
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Relevant cost Realizable value +(Fuel cost per yearx Rem aining useful life) S14,400+($6,000 x 4) $14, 400+$24,000 =$38, 400 X

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