Reference no: EM131130891
Consider the following investment opportunity.
Initial cost: $850,000
Annual revenues: $500,000
Annual operating costs, exclusive of depreciation: $200,000
Expected life: 20 years
Salvage value after taxes: $40,000
Annual depreciation for tax purposes: $25,000
Tax rate: 34%
Assume the annual figures are unchanged for the expected life of the investment.
1. What is the rate of return on this investment?
2. Assuming the investor wants to earn at least 12 percent, is this investment an attractive one?
Please provide calculation details.
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