ABANDONMENT OPTION The Scampini 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 $6,250 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 10%.
Year | Annual After-Tax Cash Flow | Abandonment value |
0 | ($22,500) | - |
1 | 6,250 | $17,500 |
2 | 6,250 | 14,000 |
3 | 6,250 | 11,000 |
4 | 6,250 | 5,000 |
5 | 6,250 | 0 |
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