Evaluate capital expenditure proposals using the accounting rate of return method. (Obj. 1). An asset costing $100,000 will have an estimated net salvage value of $10,000 at the end of its 10-year life. It is expected to produce a net cash inflow, before taxes, of $20,000 per year. Straight-line depreciation will be used. The company's income tax rate is 30 percent.

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

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

LO.1