Layton Company Is Replacing an Old Delivery Van with a New

question 33

Multiple Choice

Layton Company is replacing an old delivery van with a new van. The following data relate to this investment decision:
$\begin{array}{|l|r|}\hline \text { Cost of the new van now } & \$ 20,000 \\\hline \text { Annual cash operating costs of the new Van } & \$ 6,000 \\\hline \text { Useful life of the new van } & 6 \text { years } \\\hline \text { Salvage value of the van at the End of six years } & \$ 2,000 \\\hline \text { Original cost of the old van two years ago } & \$ 18,000 \\\hline \text { Book value of the old van now } & \$ 4,000 \\\hline \text { Salvage value of the old van now } & \$ 1,000 \\\hline \text { Salvage value of the old van six year from now } & \$ 200 \\\hline \text { Annual Cash operating Costs of the old van } & \$ 8,000 \\\hline\end{array}$
The old van is in Class 10 with a maximum CCA rate of $30 \%$ and will last for six more years. The new van is also in Class 10 with a maximum CCA rate of $30 \%$ . The income tax rate is $40 \%$ , and the company's after-tax cost of capital is $10 \%$ .
-What is the incremental cash outlay now for the purchase of the new van?

• A) $17,000.
• B) $19,000.
• C) $20,000.
• D) $21,000.

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Definitions:

Private Health Insurance

A program in which each member of a large pool of individuals pays a fixed amount to a private company that agrees to pay most of the medical expenses of the pool’s members.

Medical Expenses

Costs incurred by individuals for medical care, including payments for treatments, procedures, medications, or hospital stays.

Medical Costs

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Out of Pocket

Refers to direct payments made for medical services or other expenses before insurance or reimbursements.