The effective combined tax rate in a firm is 28%. An outlay of $2 million for certain new assets is under consideration. Over the next 9 years, these assets will be responsible for annual receipts of $650,000 and annual disbursements (other than for income taxes) of $225,000. After this time, they will be used only for stand-by purposes with no future excess of receipts over disbursements. (a) What is the prospective rate of return before income taxes? (b) What is the prospective rate of return after taxes if straight-line depreciation can be used to write off these assets for tax purposes in 9 years? (c) What is the prospective rate of return after taxes if it is assumed that these assets must be written off for tax purposes over the next 20 years, using straight-line depreciation?
The effective combined tax rate in a firm is 28%. An outlay of $2 million for certain new assets is under consideration. Over the next 9 years, these assets will be responsible for annual receipts of $650,000 and annual disbursements (other than for income taxes) of $225,000. After this time, they will be used only for stand-by purposes with no future excess of receipts over disbursements.
(a) What is the prospective
(b) What is the prospective rate of return after taxes if straight-line
(c) What is the prospective rate of return after taxes if it is assumed that these assets must be written off for tax purposes over the next 20 years, using straight-line depreciation?
please solve it step by step
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
