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The Scampini Supplies Company recently purchased a new delivery truck. The new truck costs $25,000, 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 $25,000, and it is expected to generate after-tax cash flows, including depreciation, of $6,500 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 11%.
Year | Annual After-Tax Cash Flow | Abandonment Value | |||
0 | ($25,000) | - | |||
1 | 6,500 | $20,000 | |||
2 | 6,500 | 15,500 | |||
3 | 6,500 | 13,500 | |||
4 | 6,500 | 7,500 | |||
5 | 6,500 | 0 |
What is the truck's optimal economic life? Round your answer to the nearest whole number.
year(s)
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