In: Finance
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. |