Plant Company is contemplating the purchase of a new piece of equipment for $59,000. Plant is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $16,000, $14,000, $15,000, $15,000 and $5,000 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

• 2.03%.

• 2.69%.

• 6.03%.

• 9.36%.

• 11.36%.