Question

When deciding if you should buy a new truck or keep fixing an old one, at what exact point does the cost of the old truck become a bad deal for the company?

Accepted Answer

You should replace the old truck the moment that fixing it costs more than the drop in value the new truck would lose. This is called the economic tipping point. To find it, compare two numbers every year. First, look at the cost of repairs and the money lost from the truck being in the shop instead of working. Second, look at depreciation, which is the amount of money a new truck loses just by getting older. If your repair bills plus the money you lose from the truck sitting idle are higher than the depreciation cost of a new truck, you are losing money by keeping the old one. Think of it like a leaky roof. If the cost of patching the leaks every month starts to cost more than the monthly payment on a new roof, it makes no sense to keep patching it. You also have to consider reliability. If the old truck breaks down often and costs you business, that counts as a high repair cost. Once the total cost of keeping the old truck running beats the cost of owning a new one, it is time to buy.

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When deciding if you should buy a new truck or keep fixing an old one, at what exact point does the cost of the old truck become a bad deal for the company?

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