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Plant Company is contemplating the purchase of a new piece of equipment for $40,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $14,000, $12,000, $5,000, $13,000 and $1,000 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:   Multiple Choice

Plant Company is contemplating the purchase of a new piece of equipment for $40,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $14,000, $12,000, $5,000, $13,000 and $1,000 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:   Multiple Choice

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Plant Company is contemplating the purchase of a new piece of equipment for $40,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $14,000, $12,000, $5,000, $13,000 and $1,000 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:

 

Multiple Choice
  •  

    2.50%.

  •  

    3.16%.

  •  

    6.50%.

  •  

    9.83%.

  •  

    11.83%.

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