11 SlOCK Price = Chapter 10 - Suppose we have a company that is considering undertaking a project. The annual cash flows and equipment salvage values are provided below. Operating Cash Year Flow Salvage Value 0 -$10,000 1 $5,000 $6,000 Salvage value if the equipment is sold at the end of year 1 2 $4,000 $4,000 Salvage value if the equipment is sold at the end of year 2 3 $3,000 $2,000 Salvage value if the equipment is sold at the end of year 3 4 $2,000 $0 Salvage value if the equipment is sold at the end of year 4 WACC = 10% How many years should this company keep the project going? The answer is either 1 year, 2 years, 3 years or 4 years. Note #1: You don't need to consider anything else other than the information provided above. For example, taxes are already factored into these numbers. Note #2: You might find Chapter 10 slides 29 and 30 helpful and the Chapter 10 Tool Kit Answers tab beginning on row 483. Optimal # of Years