A company bought a machine two years ago for €100,000. The machine’s accounting depreciation is €20,000 per year. The machine’s second-hand market value currently is only €55,000. The expected second-hand market value one year from now is €40,000.

The expected after-tax profit attributable to the machine in the coming year is €25,000.

(a) What is the expected ARR on the machine for the coming year?

(b) What is the expected true rate of return (after-tax cash income divided by the investment) on the machine in the coming year?