Bend Manufacturers Is Considering Investing in a New Truck That

Multiple Choice

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?

A) $3,200 per month in operating cost savings
B) $20,000 overhaul avoided on old truck
C) $72,000 purchase price of old truck
D) $16,000 salvage value of old truck