The Scampini Supplies Company recently purchased a new delivery truck. The new truck costs $12,500, and it is expected to generate after-tax cash flows, including depreciation, of $3,250 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 cost of capital is 5%. what is the optimal economic life?

years annual operating cash flow salvage value

0 $-12,500 12,500

1 3,250 $11,500

2 3,250 8,000

3 3,250 5,000

4 3,250 3,000

5 3,250 0