Business, 27.12.2020 15:30 anatomyfl

The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given below. The company's cost of capital is 8 percent. Year Annual After-Tax Cash Flow Abandonment Value
0 $-22,500 -
1 6,250 $17,500
2 6,250 14,000
3 6,250 11,000
4 6,250 5,000
5 6,250 0

Required:
a. What is the truck's optimal economic life?
b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, a...

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