The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $31,000, and it is expected to generate net after-tax operating cash flows, of $8,300 per year. The truck has a 5-year expected life. The expected proceeds upon sale after tax adjustments for the truck are given below. The company's cost of capital is 11%.

a. Should the firm operate the truck until the end of its 5-year physical life? If not, what is its optimal economic life?

b. Would including the proceeds from selling an asset, in addition to operating cash flows, ever reduce the expected NPV and/ or IRR of a project?

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Proceeds upon Sale Year Annual Operating Cash Flow $(31,000) $31,000 8,300 24,000 19,200 8,300 3 8,300 15,500 8,300 8,500 8,300