Question
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
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 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%. What is its optimal economic life ( In other words: How many years should the company operate the machine?) Year Cash flow Salvage value 1 6,250 17,500 2 6,250 14,000 3 6,250 11,000 4 6,250 5,000 5 6,250 0
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