Consider the following project with a 4-year life. If terminated prior to 4 years, the equipment...

Transcribed Image Text:

Consider the following project with a 4-year life. If terminated prior to 4 years, the equipment used will have a positive salvage value. Cash flows from the project and salvage values at various stages are shown in the table below. Choose the optimal operating life of the project. Assume a WACC of 10%. Year Cash Flow Salvage Value 0 -5,000 4,500 3,200 3,375 2 2,200 2,250 3 1,500 1,125 4 900 0 4 years 3 years O2 years O 1 year 0 years Consider the following project with a 4-year life. If terminated prior to 4 years, the equipment used will have a positive salvage value. Cash flows from the project and salvage values at various stages are shown in the table below. Choose the optimal operating life of the project. Assume a WACC of 10%. Year Cash Flow Salvage Value 0 -5,000 4,500 3,200 3,375 2 2,200 2,250 3 1,500 1,125 4 900 0 4 years 3 years O2 years O 1 year 0 years