Reference no: EM132484327

A Company recently purchased a new delivery machine. The new machine cost $25,000, and it is expected to generate net after-tax operating cash flows, including depreciation, of $7,300 per year. The machine has a 5-year expected life. The expected salvage values after tax adjustments for the machine are given below. The company's cost of capital is 10%.

Annual Operating Cash Flows are as follows:

Year 0- ($25,000)

Year 1- 7,300

Year 2- 7,300

Year 3- 7,300

Year 4- 7,300

Year 5- 7,300

Salvage Value are as follows:

Year 0- $25,000

Year 1- $19,000

Year 2- $14,000

Year 3- $9,500

Year 4- $4,000

Year 5- $0

Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life?