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Economic Life The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost...

Economic Life

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 11%.

Year Annual Operating Cash Flow Salvage Value
0 -$22,500 $22,500
1 6,250 17,500
2 6,250 14,000
3 6,250 11,000
4 6,250 5,000
5 6,250 0
  1. What is the optimal number of years to operate the truck?

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