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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 in the following table. The companys cost of capital is 10%.

Year Annual operating Cash Flow Salvage Value $22,500 $22,500 17,500 6,250 6,250 14,000 6,250 11,000 5,000 6,250 6,250 a. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project