he firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What is the shareholder's total rate of return?
The firm is contemplating the following (base case):
Vehicle acquisition cost $ 48,000
Years of useful life (economic life) 1
Tax rate 25%
Required
Required return on debt 6%
Debt ratio 40%
Annual revenues $ 175,000
Operating expenses (excluding
1.Depreciate straight-line over the year of useful life, down to $0 over one year.
- The maximum dividend is paid at year end.
- Ignore any
working capital effects. - Capital charge will be based on the assets at the beginning of each year.
What is the shareholder's total rate of return? Immediately after making the investment in this vehicle, find:
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