Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $58,000 when it was purchased nine years ago. It has a book value of $7,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 3 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $62,000 and has a 10-year useful life, after which it will have no salvage value. The new truck is a little larger and would accommodate larger jobs, leading to an additional $10,000 per year in contribution margin. It would also have a refrigerated section that would reduce waste by $500 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,100 to $1,300 annually. The old truck can be sold for $8,000. Prepare a quantitative analysis to determine whether or not to purchase the new truck. Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted. Retain Truck Replace Truck $Answer $Answer $Answer $Answer SAnswer $Answer Repair and maintenance costs $Answer Waste $Answer Additional contribution margin $Answer Cost of new truck $Answer Sale of old truck $Answer Total Costs $Answer Should they retain their old truck or replace it? AnswerRetain Replace

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P

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Transcribed Image Text:Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $58,000 when it was purchased nine years ago. It has a book value of $7,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 3 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $62,000 and has a 10-year useful life, after which it will have no salvage value. The new truck is a little larger and would accommodate larger jobs, leading to an additional $10,000 per year in contribution margin. It would also have a refrigerated section that would reduce waste by $500 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,100 to $1,300 annually. The old truck can be sold for $8,000. Prepare a quantitative analysis to determine whether or not to purchase the new truck. Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted. Retain Truck Replace Truck $Answer $Answer $Answer $Answer Additional contribution margin $Answer $Answer Cost of new truck $Answer $Answer Sale of old truck $Answer $Answer Total Costs $Answer $Answer Repair and maintenance costs Waste Should they retain their old truck or replace it? AnswerRetain Replace

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