Practice Problems: Chapter 12 - Capital Budgeting: Decision Criteria GE LUOTETTUR 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 9%. Year Annual Operating Cash Salvage Value Flow 0 -$22,500 $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 a. What is the optimal number of years to operate the truck? b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? -Select- I. No. Salvage possibilities could only raise NPV and IRR. II. Yes. Salvage possibilities could only lower NPV and IRR. III. Salvage possibilities would have no effect on NPV and IRR. o Bi hp