Agricultura Monderna Company (AMC) recently purchased a new farm truck. The initial cash flow of the...

 

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Agricultura Monderna Company (AMC) recently purchased a new farm truck. The initial cash flow of the farm truck is $22,500, and it is expected to generate after-tax cash flows of $5,875 per year. The farm truck has a 5-year expected life. The expected year-end abandonment values after tax for the farm truck are given in the following table. The company's WACC is 9.11%. Should the firm operate the truck until the end of its 5-year expected life? If not, when should it be abandoned? year Abandonment value Annual after-tax cash flow 0 ($22,500) 1 5,875 $17,500 2 5,875 15,000 3 5,875 9,000 4 5,875 4,750 5 5,875 0 Agricultura Monderna Company (AMC) recently purchased a new farm truck. The initial cash flow of the farm truck is $22,500, and it is expected to generate after-tax cash flows of $5,875 per year. The farm truck has a 5-year expected life. The expected year-end abandonment values after tax for the farm truck are given in the following table. The company's WACC is 9.11%. Should the firm operate the truck until the end of its 5-year expected life? If not, when should it be abandoned? year Abandonment value Annual after-tax cash flow 0 ($22,500) 1 5,875 $17,500 2 5,875 15,000 3 5,875 9,000 4 5,875 4,750 5 5,875 0