An automaker is buying some special tools for $100,000. The tools are beingdepreciated by double declining balance depreciation using a 4-year depreciablelife and a $6250 salvage value. It is expected the tools will actually be kept inservice for 6 years and then sold for $6250. The before-tax benefit of owning thetools is as follows:Year Before-Tax Cash Flow1 $30,0002 $30,0003 $35,0004 $40,0005 $10,0006 $10,0006,250 Selling priceCompute the after-tax rate of return for this investment situation, assuming a 30%incremental tax rate. 1. An automaker is buying some special tools for $100,000. The tools are beingdepreciated by double declining balance depreciation using a 4-year depreciablelife and a $6250 salvage value. It is expected the tools will actually be kept inservice for 6 years and then sold for $6250. The before-tax benefit of owning thetools is as follows:Year123456Before-Tax Cash Flow$30,000$30,000$35,000$40,000$10,000$10,0006,250 Selling priceCompute the after-tax rate of return for this investment situation, assuming a 30%incremental tax rate.

A ratio known as return on investment is calculated to assess the effectiveness and profitability of…

Answered: An automaker is buying some special…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An automaker is buying some special tools for $100,000. The tools are being depreciated by double declining balance depreciation using a 4-year depreciable life and a $6250 salvage value. It is expected the tools will actually be kept in service for 6 years and then sold for $6250. The before-tax benefit of owning the tools is as follows: Year Before-Tax Cash Flow 1 $30,000 2 $30,000 3 $35,000 4 $40,000 5 $10,000 6 $10,000 6,250 Selling price Compute the after-tax rate of return for this investment situation, assuming a 30% incremental tax rate.