A medium-sized profitable corporation may buy a $15,000 used pickup truck for use by the shipping...

A medium-sized profitable corporation may buy a $15,000 used pickup truck for use by the shipping and receiving department. During the truck’s 5-year useful life, it is estimated the firm will save $4000 per year after all the costs of owning and operating the truck have been paid. Truck salvage value is estimated at $4500. a. What is the before-tax ROR? b. What is the after-tax ROR? Assume straight-line depreciation, 34% tax rate.

Solutions

Expert Solution

Solution :-

Depreciation Per Year = ( $15,000 - $4,500 ) / 5 = $2,100

Before tax Rate of Return = 16.61%

After tax rate of Return = 11.15%

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jeff jeffy answered 1 year ago

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