Question

13-3 If a truck company ABC has an initial capital outlay of $22,500, WACC of 10%, and the following 5 possible cash flow patterns, depending upon the number of years it operates its truck business, If operating for only one year: CF0 = -22500, CF1 = 23750 If operating for 2 years: CF0 = -22500, CF1 = 6250, CF2 = 20250 If 3 years: CF0 = -22500, CF1 = 6250, CF2 = 6250, CF3 = 17250 If 4 years: CF0 = -22500, CF1 = 6250, CF2 = 6250, CF3 = 6250, CF4 = 11250 If 5 years: CF0 = -22500, 6250 each year for 5 years In which year should the Company abandon its operation, so the company’s NPV will achieve the highest value?

Answer 1

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