Consider a project with a $3-$year life. The project can, however, be terminated prior to Year $3,$ and the project equipment can be sold at the salvage values as indicated below. All the cash flows are after taxes and the firm$$s cost of capital is $10\%.$

What is the optimal economic life of this project?

Year

CF

Salvage Value

$0$

$$$$4,500$

$$4,500$

$1$

$2,400$

$3,400$

$2$

$2,000$

$2,000$

$3$

$1,750$

$0$

Question $27$ options:

$1$ year

$2$years

$3$years