Evaluate capital expenditure proposals using the accounting rate of return method. (Obj. 1). Brookline Corporation is considering purchasing a new machine costing $100,000 to replace an existing machine, which has a book value of $20,000 and has no sales or trade-in value. The old machine has a remaining useful life of eight years. The new machine also has an estimated useful life of eight years and will have no net salvage value at the end of its lifetime. The new machine is expected to produce a net cash inflow, before taxes, of

$16,000 per year. The company uses straight-line depreciation for both accounting and tax purposes. The company's income tax rate is 25 percent.

a. Compute the estimated after-tax average annual income tax that is applicable to the increased income during the new asset's life.

b. Compute the after-tax accounting rate of return on the beginning investment.

c. Compute the after-tax accounting rate of return on the average investment.

LO.1