The initial cost of a machine is 1,000,000 TL, and its scrap value at the end of its 6-year life will be 400,000 \times 1,000 TL. Depreciation will be allocated using the double decreasing balance depreciation method. The net annual earnings of this machine will be 350,000 TL in the first year and 50,000 TL in subsequent years with an arithmetic increase. MRV is 20% compounded annually. The tax rate is 40%. What is the after-tax rate of return? Would you recommend making this investment?
The initial cost of a machine is 1,000,000 TL, and its scrap value at the end of its 6-year life will be 400,000 \times 1,000 TL. Depreciation will be allocated using the double decreasing balance depreciation method. The net annual earnings of this machine will be 350,000 TL in the first year and 50,000 TL in subsequent years with an arithmetic increase. MRV is 20% compounded annually. The tax rate is 40%. What is the after-tax rate of return? Would you recommend making this investment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The initial cost of a machine is 1,000,000 TL, and its
scrap value at the end of its 6-year life will be
400,000 \times 1,000 TL. Depreciation will be
allocated using the double decreasing balance
depreciation method. The net annual earnings of this
machine will be 350,000 TL in the first year and
50,000 TL in subsequent years with an arithmetic
increase. MRV is 20% compounded annually. The tax
rate is 40%. What is the after-tax rate of return?
Would you recommend making this investment?
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