ABC Co. is contemplating an $18,000 investment in a methane gas generator. They estimate gross income will be $4500 the first year and increase by $500 each year over the next 10 years. Expenses of $300 the first year would increase by $250 each year over the next 10 years. ABC will depreciate the generator by MACRS depreciation, assuming a 7-year property class. A 10-year-old methane generator has no market value. The combined income tax rate is 31%. (Remember that recaptured depreciation is taxed at the same 31% rate.) (a) Construct the after-tax cash flow for the 10-year project life. (b) Determine the after-tax rate of return on this investment. ABC Co. thinks it should be at least 8%. (c) If ABC Co. could sell the generator for $10,000 at the end of the fifth year, what would the rate of return be?
ABC Co. is contemplating an $18,000 investment in a methane gas generator. They estimate gross income will be $4500 the first year and increase by $500 each year over the next 10 years. Expenses of $300 the first year would increase by $250 each year over the next 10 years. ABC will
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