ABANDONMENT OPTION The Sorensen Supplies Company recently purchased a new delivery truck. The new truck costs $22,500; and it is expected to generate after-tax cash flows, including depreciation, of $5,875 per year. The truck has a 5-year expected life. The expected year-end abandonment values (salvage values after tax adjustments) for the truck are given here. The company's WACC is 9%.
Year | Annual After-Tax Cash Flow | Abandonment Value |
1 | ($22,500 | — |
2 | 5,875 | $17,000 |
3 | 5,875 | 15,000 |
4 | 5,875 | 9,000 |
5 | 5,875 | 4,750 |
6 | 5,875 | 0 |
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