The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and...

Transcribed Image Text:

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 10%. 6,250 Year Annual Operating Cash Flow Salvage Value 0 -$22,500 $22,500 1 17,500 2 14,000 3 11,000 4 5 6,250 6,250 0 6,250 T 6,250 5,000 a. What is the optimal number of years to operate the truck? Do not round intermediate calculations. Round your answers to the nearest whole number. years b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? 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. I 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 10%. 6,250 Year Annual Operating Cash Flow Salvage Value 0 -$22,500 $22,500 1 17,500 2 14,000 3 11,000 4 5 6,250 6,250 0 6,250 T 6,250 5,000 a. What is the optimal number of years to operate the truck? Do not round intermediate calculations. Round your answers to the nearest whole number. years b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? 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. I