Plant Company is contemplating the purchase of a new piece of equipment for $59,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $16,000, $14,000, $15,000, $15,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. The hurdle rate for accepting new capital investment projects is 4%, after-tax. The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment is:

Plant Company is contemplating the purchase of a new piece of equipment for $59,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $16,000, $14,000, $15,000, $15,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. The hurdle rate for accepting new capital investment projects is 4%, after-tax. The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment is:

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 8PROB

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