Layton Company Is Replacing an Old Delivery Van with a New

question 37

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 approximate annual after-tax savings in cash operating costs?

• A) $400.
• B) $800.
• C) $1,200.
• D) $2,000.

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Definitions:

Coalitions

Groups formed within an organization by individuals or teams sharing common goals or interests, often to gain influence or achieve a specific objective.

Norming Stage

A phase in team development where members establish standards and norms, enhancing unity and cooperation.

Cliques

Small, exclusive groups of people who share common interests or views, often excluding others.

Noticeable

Easily seen, recognized, or observed; attracting attention.