Question

The managers at Mango Company recently performed incremental analysis when deciding whether to replace an old delivery truck with a new delivery truck. Which of the following factors were most likely included in their analysis? 1. Net cost of new truck. 2. Annual operating cost of the old truck. 3. Estimated annual depreciation expense on the new truck. A : 2 and 3 only. B : 1 and 2 only. C : 1, 2, and 3. D : 1 and 3 only.

Answer 1

The managers at Mango Company would include the net cost of the new truck, the annual operating cost of the old truck, and the estimated annual depreciation expense of the new truck in their incremental analysis for the replacement decision. The correct answer is C: 1, 2, and 3.

Step-by-step explanation:

The key factors that would likely be included in an incremental analysis for a decision to replace an old delivery truck with a new one at Mango Company are twofold: 1. The net cost of the new truck, which incorporates the purchase price minus any potential sale value of the old truck; and 2. The annual operating cost of the old truck, which includes maintenance, fuel, insurance, and any other costs associated with running the older vehicle. The estimated annual depreciation expense on the new truck is a non-cash charge and does not impact the immediate cash flow, but it is essential for understanding the long-term financial impact of the investment and may influence tax considerations. Consequently, the managers would likely consider all three factors, thus the correct answer to the question is C: 1, 2, and 3.