Reference no: EM132168104

Question: A group of businessmen formed a corporation to lease for 5 years a piece of land at the intersection of two busy streets. The corporation has invested $50,000 in car-washing equipment. They will depreciate the equipment by sum-of-years'-digits depreciation, assuming a $5000 salvage value at the end of the 5-year useful life. The corporation is expected to have a before-tax cash flow, after meeting all expenses of operation (except depreciation), of $20,000 the first year, declining $3000 per year in future years (second year = $17,000, third year = $14,000, etc.). The corporation has other income, so it is taxed at a combined corporate tax rate of 20%. If the projected income is correct, and the equipment can be sold for $5000 at the end of 5 years, what aftertax rate of return would the corporation receive from this venture?