You are asked to determine the optimal economic life of the following project. It has an engineering or physical life of 4 years. The cost of capital is 8% and all cash flows except the initial cost are end of year cash flows.
Year Net operating cash flow Net terminal cash flow
0 (50,000)
1 20,000 35,000
2 15,000 25,000
3 10,000 15,000
4 5,000 5,000