Answered step by step
Verified Expert Solution
Link Copied!

Question

...
1 Approved Answer

The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $22,500, and it is expected to

The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $22,500, and it is expected to generate after-tax cash flows of $7,200 per year. The truck has a 5-year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck are given below. The company's WACC is 9%.

Year Annual After-Tax Cash Flow Abandonment Value
0 ($22,500) -
1 7,200 $16,500
2 7,200 13,000
3 7,200 11,000
4 7,200 6,000
5 7,200 0
  1. What is the truck's optimal economic life? Round your answer to the nearest whole number.

    _____ year(s)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter

8th Canadian Edition

978-0071338875

Students also viewed these Finance questions