An automaker is buying some special tools for$100,000. The

Chapter , Problem 12-24

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An automaker is buying some special tools for$100,000. The tools are being depreciated by dou-ble declining balance depreciation using a 4-yeardepreciable life and a $6250 salvage value. It isexpected the tools will actually be kept in servicefor 6 years and then sold for $6250. The before- taxbenefit of owning the tools is as follows:Before-TaxYearCashFlow1 $30,0002 30,0003 35,0004 40,0005 10,0006 10,0006,250 Selling priceCompute the after-tax rate of return for thisinvestment situation, assuming a 46% incrementaltax rate.

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