Brett Co. just purchased a new delivery truck. The new truck cost $25,000 and is expected to generate net after-tax operating cash flows, including depreciation, of $7,000 at the end of each year. The truck has a 5-year expected life. The expected abandonment values (salvage values after tax adjustments) at different points in time are given below. (Note that these abandonment value estimates assume that the truck is sold after receiving the project's cash flow for the year.) The firm's cost of capital is 10 percent.
At what point in time would the company choose to sell (abandon) the truck in order to maximize its NPV?

Question

Brett Co. just purchased a new delivery truck. The new truck cost $25,000 and is expected to generate net after-tax operating cash flows, including depreciation, of $7,000 at the end of each year. The truck has a 5-year expected life. The expected abandonment values (salvage values after tax adjustments) at different points in time are given below. (Note that these abandonment value estimates assume that the truck is sold after receiving the project's cash flow for the year.) The firm's cost of capital is 10 percent.
 At what point in time would the company choose to sell (abandon) the truck in order to maximize its NPV?

Quizplus · Accepted Answer

The Answer of Brett Co. just purchased a new delivery truck. The new truck cost $25,000 and is expected to generate net after-tax operating cash flows, including depreciation, of $7,000 at the end of each year. The truck has a 5-year expected life. The expected abandonment values (salvage values after tax adjustments) at different points in time are given below. (Note that these abandonment value estimates assume that the truck is sold after receiving the project's cash flow for the year.) The firm's cost of capital is 10 percent.
 At what point in time would the company choose to sell (abandon) the truck in order to maximize its NPV?

Brett Co Just Purchased a New Delivery Truck