ISooky Has a Spotter Truck with a Book Value of $40,000

question 113

Multiple Choice

iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years.At the end of the five years the spotter truck will have a zero salvage value.The market value of the spotter truck is currently $32,000.iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck.The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck.The total increase or decrease in income by replacing the current spotter truck with the new truck (ignoring the time value of money) is:

• A)$31,000 decrease
• B)$31,000 increase
• C)$36,000 decrease
• D)$120,000 decrease
• E)$36,000 increase

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Definitions:

Initial Investment

Initial investment refers to the capital amount spent to start a business venture, project, or purchase an asset.

Intangible Benefit

A non-quantifiable advantage or positive outcome derived from a product or service, such as brand recognition or customer loyalty.

Discount Rate

This is the discount rate used to figure out what future cash flows are worth in the present in discounted cash flow analysis.

Small Used Aircraft

A previously owned aircraft that is smaller in size, often used for personal, business, or small commercial purposes.