Question
The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-tax cost of $22,500, and it is expected to generate
The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-tax cost of $22,500, and it is expected to generate an after-tax cash flow of $6,250 per year. The truck has a 5-year expected life. The truck's expected year-end abandonment values (after-tax salvage values) are given here. The companys WACC is 10% a. Should the firm operate the truck until the end of its 5-year physical life; if not, what is the trucks optimal economic life? b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce a projects expected NPV and/or IRR? Explain.
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