ProDiem wal The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $23,500, and it is expected to generate after-tax cash flows of $6,350 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 Abandonment Value Flow ($23,500) 6,350 $19,500 6,350 16,000 6,350 12,000 6,350 ৪,000 6,350 a. What is the truck's optimal economic life? Round your answer to the nearest whole number. year(s) b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? -Select- v
ProDiem wal The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $23,500, and it is expected to generate after-tax cash flows of $6,350 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 Abandonment Value Flow ($23,500) 6,350 $19,500 6,350 16,000 6,350 12,000 6,350 ৪,000 6,350 a. What is the truck's optimal economic life? Round your answer to the nearest whole number. year(s) b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? -Select- v
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
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Transcribed Image Text:10. Problem 12.16 (Abandonment Option)
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The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $23,500, and it is expected to generate after-tax cash flows of $6,350 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
Abandonment Value
Flow
($23,500)
1
6,350
$19,500
2
6,350
16,000
3
6,350
12,000
4
6,350
8,000
6,350
a. What is the truck's optimal economic life? Round your answer to the nearest whole number.
year(s)
b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
-Select- v
................
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