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Determine the estimated accounting rate of return

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Question - Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 40% income tax bracket. Predicted annual after-tax cash inflows from this investment are $27,000, $15,000, $3,000, $6,000 and $4,000 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. Determine the estimated accounting rate of return (ARR) on this project based on the initial investment?

Reference no: EM133088706

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