Chapter 13, Problem 17E

Exercise 6-17A    Asset replacement—opportunity cost

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

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? Explain.