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ABC Co. is contemplating an $18,000 investment in a methane gas generator. They estimate gross income will be $4500 the first year and increase by
ABC Co. is contemplating an $18,000 investment in a methane gas generator. They estimate gross income will be $4500 the first year and increase by S500 each year over the next 10 years. Expenses of $300 the first year would increase by $250 each year over the next 10 years. ABC will depreciate the generator by MACRS depreciation, assuming a 7-year property class. A 10-year-old methane generator has no market value. The combined income tax rate is 45%. (Remember that recaptured depreciation is taxed at the same 45% rate.) (a) Construct the after-tax cash flow for the 10-year project life (b) Determine the after-tax rate of return on this investment. ABC Co. thinks it should be at least 8% (c) If ABC Co. could sell the generator for $10,000 r, what would the rate at the end of the fifth y of return be
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