The effective combined tax rate in an owner-managed corporation is 40%. An outlay of $20,000 for certain

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The effective combined tax rate in an owner-managed corporation is 40%. An outlay of $20,000 for certain new assets is under consideration. It is estimated that for the next 8 years, these assets will be responsible for annual receipts of $9000 and annual disbursements (other than for income taxes) of $4000. Meter this time, they will be used only for stand-by purposes, and no future excess of receipts over disbursements is estimated.

(a) What is the prospective rate of return before income taxes?

(b) What is the prospective rate of return after taxes if straight-line depreciation can be used to write off these assets for tax purposes in 8 years?

(c) What is the prospective rate of return after taxes if it is assumed that these assets must be written off for tax purposes over the next 20 years, using straight-line depreciation?

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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