Question

Now assume that the facts in Problem 1 remain unchanged except for the depreciation method, which is switched to an accelerated method with the following depreciation schedule:
Year % of Depreciable Asset
1 ........... 40
2 ........... 20
3 ........... 14.4
4 ........... 13.3
5 ........... 13.3
Depreciable asset = Initial investment − Salvage value
a. Estimate the pretax return on capital, by year and on average, for the project.
b. Estimate the after-tax return on capital, by year and on average, for the project.
c. If the firm faced a cost of capital of 12%, should it take this project?


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  • CreatedApril 15, 2015
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