INTERMEDIATE FINANCIAL MGMT.-W/MINDTAP
INTERMEDIATE FINANCIAL MGMT.-W/MINDTAP
14th Edition
ISBN: 9780357533598
Author: Brigham
Publisher: CENGAGE L
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Chapter 12, Problem 22P

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 here. The company’s cost of capital is 10%.

Chapter 12, Problem 22P, The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500,

  1. a. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life?
  2. b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
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INTERMEDIATE FINANCIAL MGMT.-W/MINDTAP

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