2. Estimate the approximate after-tax rate of return for a project that has a fi

Question

2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate
2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate
2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate
2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate
2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate
2. Estimate the approximate after-tax rate of return for a project that has a first cost of $500,000, a salvage value of 20% of the first cost after 3 years, and annual gross income less operating expenses of (GI -OE) = $230,000. Assume the company has a 35% effective tax rate

Explanation / Answer

Initial Investment 500000 Less: Salvage 100000 Depreciable amount 400000 Divide: Life 3 Annual Depreciation 133333 Annual Revenue-Operating expens 230000 Less: Depreciation 133333 Net income before tax 96667 Less: Tax @35% 33833 Net income after tax 62834 Average investment (500,000+100,000)2: 300,000 Rate of return (After tax): Net income after tax / Average investment *100 62834/ 300,000 *100 = 20.94%

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