4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-taxcost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 per year. The truck has a 5-year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck aregiven here. The company's WACC is 10%.Year Annual After-Tax Cash Flow($22,500)6,2506,2506,2506,2506,25001235After-Tax Abandonment Value$17,50014,00011,0005,0000a. .Should the firm operate the truck until the end of its 5-year physical life; if not, what is the truck'soptimal economic life?b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce theexpected NPV and/or IRR of a project? Explain.

Name: 4. The Scampini Supplies Company recently purchased a new delivery tr
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Description: 4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-taxcost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 per year. The truck has a 5-year expected life. The expected year

NPV is the capital budgeting technique used to evaluate the capital expenditure and the investment…

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4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-ta cost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 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 here. The company's WACC is 10%. Year Annual After-Tax Cash Flow ($22,500) 6,250 0 1 2 3 6,250 6,250 6,250 6,250 a. .Should the firm operate the truck until the end of its 5-year physical life; if not, what is the truck's optimal economic life? 4 After-Tax Abandonment Value 5 $17,500 14,000 11,000 5,000 0 b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Explain.

4. The Scampini Supplies Company recently purchased a new delivery truck. The new truck has an after-ta cost of $22,500, and it is expected to generate after-tax cash flows, of $6,250 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 here. The company's WACC is 10%. Year Annual After-Tax Cash Flow ($22,500) 6,250 0 1 2 3 6,250 6,250 6,250 6,250 a. .Should the firm operate the truck until the end of its 5-year physical life; if not, what is the truck's optimal economic life? 4 After-Tax Abandonment Value 5 $17,500 14,000 11,000 5,000 0 b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Explain.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

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

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