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What is the after-tax accounting rate of return

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Reference no: EM133092662

Question - The manager of Malan Pty Ltd wants to buy a new machine to replace the one currently being used. The new machine will cost $100 000 with no disposal value at the end of a five-year useful life. The manager estimates that the machine will reduce annual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate for each year is expected to be 20 per cent and the company has an after-tax hurdle rate of 12 per cent. What is the after-tax accounting rate of return computed based on the initial investment?

a. 8%

b. 20%

c. 4%

d. 10%

Reference no: EM133092662

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