A corporation with a 34% income tax rate is considering the following investment in research equipment and

Question:

A corporation with a 34% income tax rate is considering the following investment in research equipment and has projected the benefits as follows

Before-Tax

Year Cash Flow

0 -$50,000

1 +2,000

2 +8,000

3 +17,600

4 + 13,760

5 +5,760

6 +2,880

Prepare a cash flow table to determine the year by- year after-tax cash flow assuming MACRS depreciation.

(a) What is the after-tax rate of return?

(b) What is the before-tax rate of return?

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