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A 12-20 An automaker is buying some special tools for $100,000. The tools are being depreciated by dou- ble declining balance depreciation using a
A 12-20 An automaker is buying some special tools for $100,000. The tools are being depreciated by dou- ble declining balance depreciation using a 4-year depreciable life and a $6250 salvage value. It is expected the tools will actually be kept in service for 6 years and then sold for $6250. The before-tax benefit of owning the tools is as follows: Year Before-Tax Cash Flow 123456 $30,000 30,000 35,000 40,000 10,000 10.000 6,250 Selling price Compute the after-tax rate of return for this investment situation, assuming a 30% incremental tax rate.
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