A corporation with a 34% income tax rate is considering the following investment in research equipment and has projected the benefits as follows:
Year Before-Tax Cash Flow
0.............................. -$50,000
1.............................. +2,000
2.............................. +8,000
3.............................. +17,600
4.............................. + 13,760
5.............................. +5,760
6.............................. +2,880
Prepare a cash flow table to determine the year-by-year after-tax cash flow assuming MACRS depreciation.
(a) What is the after-tax rate of return?
(b) What is the before-tax rate of return?