Brandon Company is contemplating the purchase of a new piece of equipment for $41,000. Brandon is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $12,000, $13,000, $7,000, $11,000 and $1,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.

The hurdle rate for accepting new capital investment projects is 4%, after-tax. The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment is:

Multiple Choice

• 8.79%.

• 1.46%.

• 5.46%.

• 10.79%.

• 2.12%.