Reference no: EM131926497

Question: Inland Trucking Company is considering the replacement of a 500-kilogram-capacity forklift truck. The truck was purchased 3 years ago at a cost of $15,000. The diesel-operated forklift truck was originally expected to have a useful life of 8 years and a zero estimated salvage value at the end of that period. The truck has not been dependable and is frequently out of service while awaiting repairs. The maintenance expenses of the truck have been rising steadily and currently amount to about $3000 per year. The truck could be sold for $6000. If retained, the truck will require an immediate $1500 overhaul to keep it in operable condition. This overhaul will neither extend the originally estimated service life nor will it increase the value of the truck. The updated annual operating costs, engine overhaul, and market values over the next 5 years are estimated as follows: (ignore depreciation)

N	O&M	Depreciation	Engine Overhaul	Market Value
-3 -2 -1 0 1 2 3 4 5	- - - - $3000 3500 3800 4500 4800	------ $3000 4800 2880 1728 1728 864 0 0	---- ---- ---- $1500 --- --- --- ---- 5000	---- ---- ---- $6000 4000 3000 1500 1000 0

A drastic increase in costs during the fifth year is expected due to another overhaul, which will be required to keep the truck in operating condition. The firm's MARR is 15%.

(a) If the truck is to be sold now, what will be its sunk cost?

(b) What is the opportunity cost of not replacing the truck now?

(c) What is the annual equivalent cost of owning and operating the truck for 2 more years?

(d) What is the annual equivalent cost of owning and operating the truck for 5 years?