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 9 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?
The effective combined tax rate in a firm is 28%. An outlay of $2 million for certain new assets is under consideration. Over the next 9 years, these assets will be responsible for annual receipts of $650,000 and annual disbursements (other than for income taxes) of $225,000. After this time, they will be used only for stand-by purposes with no future excess of receipts over disbursements.
(a) What is the prospective
(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 9 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?
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