The Scampini Supplies Company recently purchased a new delivery truck.?
The machine’s cost is $ 22,500. It is expected to generate net-after tax operating cash flows, including depreciation, of $ 6,250 per year. The machine has 5-year expected life. The salvage value at the end of year 1 is $17,500; year 2 is $14,000; year 3 is $ 11,000; year 4 is $ 5,000; and year 5 is zero. The company which owns the machine encounters 10 percent in cost of capital. Should the firm operate the truck until the end of its 5-year physical life, or, if not, what is the optimal economic life? (10 points)
