After-Tax Analysis EXAMPLE 1 An analysis of a firm's sales activities indicates that a number of profitable sales are lost cach year because the firm cannot deliver some of its products quickly enough. By investing an additional $20,000 in inventory it is believed that the firm will realize $1000 more in before-tax profits in the first year. In the second year, before-tax extra profit will be $1500. Profits for subsequent years are expected to continue to increase on a $500-per-year gradient. The investment in the additional inventory may be recovered at the end of a 4-year analysis period simply by selling it and not replenishing the inventory. Compute: (a) The before-tax rate of return. (b) The after-tax rate of return assuming an incremental tax rate of 39%. Return to the data of Example 12-6, where the used truck had a first cost of $3000, a salvage value after 5 years of $750, and savings of $800 per year. Use MACRS depreciation and calculate the after-tax rate of return