The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it

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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%.

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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?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Corporate Finance A Focused Approach

ISBN: 978-1439078082

4th Edition

Authors: Michael C. Ehrhardt, Eugene F. Brigham

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