Problem regarding the economic life

Reference no: EM131015293

Economic Life

The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given below. The company's cost of capital is 10.5 percent.

Year	Annual Operating Cash Flow	Salvage Value
0	-$22,500	$22,500
1	6,250	17,500
2	6,250	14,000
3	6,250	11,000
4	6,250	5,000
5	6,250	0

What is the optimal number of years to operate the truck?

Reference no: EM131015293

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