iSooky has a spotter truck with a book value of $52,000 and a remaining useful life of 5 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 $38,000. iSooky can purchase a new spotter truck for $132,000 and receive $32,200 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $26,200 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:

Increase by $31,200

Explanation:

                                         Retain Truck    Replace Truck   Net Increase

Sale price of old Truck     $0                       $32,200            $32,200

Cost of New Truck            $0                     -$132,000          -$132,000

Variable manuf. cost        -$131,000            $0                      $131,000

Net Income                      -$131,000          -$99,800            $31,200

The total increase in income by replacing the old Truck is $31,200.

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