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The Scampini Supplies Company recently purchased a new delivery truck. The new truck costs $23,000, and it is expected to generate after-tax cash flows, including

The Scampini Supplies Company recently purchased a new delivery truck. The new truck costs $23,000, and it is expected to generate after-tax cash flows, including depreciation, of $5,750 per year. The truck has a 5-year expected life. The expected year-end abandonment values (salvage values after tax adjustments) for the truck are given below.

The company's WACC is 8%. Year Annual After-Tax Cash Flow Abandonment Value

0 ($23,000) -

1 5,750 $18,000

2 5,750 14,500

3 5,750 12,500

4 5,750 8,500

5 5,750 0

What is the truck's optimal economic life? Round your answer to the nearest whole number. year(s) Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Yes

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