Question
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $20,500, and it is expected to
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $20,500, and it is expected to generate after-tax cash flows of $5,725 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 8%.
Year | Annual After-Tax Cash Flow | Abandonment Value | |||
0 | ($20,500) | - | |||
1 | 5,725 | $14,500 | |||
2 | 5,725 | 12,000 | |||
3 | 5,725 | 9,000 | |||
4 | 5,725 | 4,000 | |||
5 | 5,725 | 0 |
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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?
-Select-YesNo
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