Joco Company has decided to aquire additional delivery van costing $22,500. The van is expected to bring in after-tax cash flows of $6,250 for the next 5 years. The van has estimated useful life of 5 years. And, the expected year-end abandonment values (mainly of after-tax salvage values) are presented on the table below. Joco company is considering the 10% WACC for this alternative. Year Annual After-tax cash flow (in dollars) Abandonment Value (In Dollars) 0 (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 - Should the company use the new van until the end of its useful life? If not, what is the optimal economic life of the van.
Joco Company has decided to aquire additional delivery van costing $22,500. The van is expected to bring in after-tax cash flows of $6,250 for the next 5 years. The van has estimated useful life of 5 years. And, the expected year-end abandonment values (mainly of after-tax salvage values) are presented on the table below. Joco company is considering the 10% WACC for this alternative. Year Annual After-tax cash flow (in dollars) Abandonment Value (In Dollars) 0 (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 - Should the company use the new van until the end of its useful life? If not, what is the optimal economic life of the van.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Joco Company has decided to aquire additional delivery van costing $22,500. The van is expected to bring in after-tax cash flows of $6,250 for the next 5 years. The van has estimated useful life of 5 years. And, the expected year-end abandonment values (mainly of after-tax salvage values) are presented on the table below. Joco company is considering the 10% WACC for this alternative.
| Year | Annual After-tax cash flow (in dollars) | Abandonment Value (In Dollars) |
| 0 | (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 | - |
Should the company use the new van until the end of its useful life? If not, what is the optimal economic life of the van.
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