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 below. The company's cost of capital is 10%.

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?b. Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of aproject?

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Annual Operating Cash Flow -$2,500 6,250 6,250 6,250 6,250 6,250 Salvage Value Year $22,500 17,500 14,000 11,000 5,000 4 2.