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Your firm recently purchased a new bulldozer. The bulldozer costs $115,000, and is expected to generate...

  1. Your firm recently purchased a new bulldozer. The bulldozer costs $115,000, and is expected to generate net after-tax operating cash flows, including depreciation, of $60,000 per year for the 4 years that the firm is thinking about keeping it. The expected year-end abandonment values for the plant are given below. The company’s cost of capital is 14 percent. What is the optimal economic life?

    CASH FLOW ABANDONMENT VALUE
    (115,000)
    60,000 100,000
    60,000 55,000
    60,000 30,000
    60,000 8,000

                      

    A.

    The EAA method confirms that the economic life is 4 years.
    B.

    The EAA method confirms that the economic life is 1 year.
    C.

    The EAA method confirms that the economic life is 2 years.
    D.

    The EAA method confirms that the economic life is 3 years.
    E.

    An economic life of 2 years ties with an economic life of 4 years.

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Expert Solution

jeff jeffy answered 2 years ago
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