Question

Hartley's meat pies is considering replacing its existing delivery van with a new one. thenew van can offer considerable savings in operating costs. information about the existing van and the new van follow:

Answer 1

Answer:

Increase by $75,000

Explanation:

Existing van New van

Original cost $56,000 $95,000

Annual operating cost $22,500 $15,000

Accumulated depreciation $33,000

Current salvage value of the existing van $27,500

Remaining life 10 years 10 years

Salvage value in 10 years, $ 0, $0

Annual depreciation, $2,300, $9,500  

If Hartley's Meat Pies replaces the existing delivery van with the new one, over the next 10 years operating income will increase by 75000 dollars as follows:

New van ($15,000 × 10 years) - Existing van ($22,500 × 10 years) = $75,000