Question
In: Finance
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the...
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $23,000, and it is expected to generate after-tax cash flows of $6,225 per year. The truck has a 5-year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck are given below. The company's WACC is 8%.
| Year | Annual After-Tax Cash Flow | Abandonment Value | |||
| 0 | ($23,000) | - | |||
| 1 | 6,225 | $17,000 | |||
| 2 | 6,225 | 12,500 | |||
| 3 | 6,225 | 9,500 | |||
| 4 | 6,225 | 5,500 | |||
| 5 | 6,225 | 0 | |||
-
What is the truck's optimal economic life? Round your answer to the nearest whole number.
_______ year(s)
-
Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the...
The Sorensen Supplies Company recently purchased a new delivery
truck. The initial cash outflow for the new truck is $25,000, and
it is expected to generate after-tax cash flows of $6,200 per year.
The truck has a 5-year expected life. The expected year-end
abandonment values (after-tax salvage values) for the truck are
given below. The company's WACC is 11%.
Year
Annual After-Tax Cash Flow
Abandonment Value
0
($25,000)
-
1
6,200
$21,000
2
6,200
18,500
3
6,200
16,500
4
6,200...
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the...
The Sorensen Supplies Company recently purchased a new delivery
truck. The initial cash outflow for the new truck is $20,000, and
it is expected to generate after-tax cash flows of $6,975 per year.
The truck has a 5-year expected life. The expected year-end
abandonment values (after-tax salvage values) for the truck are
given below. The company's WACC is 8%.
Year
Annual After-Tax Cash Flow
Abandonment Value
0
($20,000)
-
1
6,975
$14,000
2
6,975
10,500
3
6,975
8,500
4
6,975...
The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the...
The Sorensen Supplies Company recently purchased a new delivery
truck. The initial cash outflow for the new truck is $20,500, and
it is expected to generate after-tax cash flows of $5,725 per year.
The truck has a 5-year expected life. The expected year-end
abandonment values (after-tax salvage values) for the truck are
given below. The company's WACC is 8%.
Year
Annual After-Tax Cash Flow
Abandonment Value
0
($20,500)
-
1
5,725
$14,500
2
5,725
12,000
3
5,725
9,000
4
5,725...
he Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the...
he Sorensen Supplies Company recently purchased a new delivery
truck. The initial cash outflow for the new truck is $25,000, and
it is expected to generate after-tax cash flows of $6,200 per year.
The truck has a 5-year expected life. The expected year-end
abandonment values (after-tax salvage values) for the truck are
given below. The company's WACC is 11%.
Year
Annual After-Tax Cash Flow
Abandonment Value
0
($25,000)
-
1
6,200
$21,000
2
6,200
18,500
3
6,200
16,500
4
6,200...
20. The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500,...
20. 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 6
percent.
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...
Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected...
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 12.5 percent.
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/...
1. H Corp recently purchased a new delivery truck. The new truck has a cost of...
1. H Corp recently purchased a new delivery truck. The new truck
has a cost of $56250 and is expected to generate after tax cash
flows including depreciation of $15625 per year. The truck has a
five year expected life. The expected year end abandonment Values
(Salvage Value after tax adjustments) for the truck are given
below. The company’s cost of capital is 11%
Year
Annual operating CF Abandonment Value
0
(56250)
----
1
15,625
43750
2
15,625
35000
3 ...
Clifford Delivery Company purchased a new delivery truck for $72,000 on April 1, 2019. The truck...
Clifford Delivery Company purchased a new delivery truck for
$72,000 on April 1, 2019. The truck is expected to have a service
life of 5 years or 90,000 miles and a residual value of $3,000. The
truck was driven 8,000 miles in 2019 and 20,000 miles in 2020.
Clifford computes depreciation expenses to the nearest whole
month.
Required:
Compute depreciation expense for 2019 and 2020 using the
following methods: (Round your answers to the nearest
dollar.)
Straight-line method
2019
$...
Storm Delivery Company purchased a new delivery truck for $53,400 on April 1, 2016. The truck...
Storm Delivery Company purchased a new delivery truck for
$53,400 on April 1, 2016. The truck is expected to have a service
life of 5 years or 150,000 miles and a residual value of $4,320.
The truck was driven 8,200 miles in 2016 and 11,800 miles in 2017.
Storm computes depreciation to the nearest whole month.
Required:
Compute depreciation expense for 2016 and 2017 using the
For interim computations, carry amounts out to two decimal places.
Round your final answers...
Bar Delivery Company purchased a new delivery truck for $36,000 on April 1, 2019. The truck...
Bar Delivery Company purchased a new delivery truck for $36,000
on April 1, 2019. The truck is expected to have a service life of 5
years or 120,000 miles and a residual value of $3,000. The truck
was driven 10,000 miles in 2019 and 18,000 miles in 2020. Bar
computes depreciation expense to the nearest whole month.
Compute depreciation expense for 2019 and 2020 using the
following methods: (Round your answers to the nearest
dollar.)
Straight-line method
2019
$
2020...
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