A group of businessmen formed a corporation tolease for 5

Chapter , Problem 12-19

(choose chapter or problem)

A group of businessmen formed a corporation tolease for 5 years a piece of land at the intersectionof two busy streets. The corporation has invested$50,000 in car-washing equipment. They will depre- ciate the equipment by sum-of-years-digits depre-ciation, assuming a $5000 salvage value at theend of the 5-year useful life. The corporation isexpected to have a before-tax cash flow, after meet-ing all expenses of operation (except depreciation),of $20,000 the first year, declining $3000 per yearin future years (second year=$17,000, third year=$14,000, etc.). The corporation has other income,so it is taxed at a combined corporate tax rate of 20%.If the projected income is correct, and the equipmentcan besold for $5000at the endof5 years,whatafter-tax rate of return would the corporation receive fromthis venture?