Brandon Company is contemplating the purchase of a new piece of equipment for $42,000. Brandon...
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Accounting
Brandon Company is contemplating the purchase of a new piece of equipment for $42,000. Brandon is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $13,000, $7,000, $5,000 and $4,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.
The hurdle rate for accepting new capital investment projects is 4%, after-tax. The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment is:
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