Zachary Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $23,000, and its expected remaining useful life is four years. Zachary 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 $6,600 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 $17,000. Required Calculate the total relevant costs. Should Zachary replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Total relevant costs Should Zachary replace or continue the old truck? Keep Old Replace the old truck. Replace With New
Zachary Freight Company owns a truck that cost $36,000. Currently, the truck's book value is $23,000, and its expected remaining useful life is four years. Zachary 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 $6,600 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 $17,000. Required Calculate the total relevant costs. Should Zachary replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Total relevant costs Should Zachary replace or continue the old truck? Keep Old Replace the old truck. Replace With New
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 9P
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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