Ask Question
1 August, 22:16

Jefferson Company is considering investing $33,000 in a new machine. The machine is expected to last five years and to have a salvage value of $8,000. Annual before-tax net cash inflow from the machine is expected to be $7,000. Calculate the unadjusted rate of return. The income tax rate is 40%.

+5
Answers (1)
  1. 2 August, 00:24
    0
    Jefferson Company the un-adjusted rate of return is 3.64%

    Explanation:

    To Find-out the Un-adjusted Rate of return we have to compute the Depreciation Cost

    Depreciation Cost = (Investment - Salvage Cost) / Machine Life

    Depreciation Cost = ($33,000 - $8,000) / 5

    Depreciation Cost = $25,000 / 5

    Depreciation Cost = $5,000

    Net Income = (Annual before tax net cash inflow - Depreciation Cost) * (1 - Income Tax Rate)

    Net Income = ($7,000 - $5,000) * (1 - 40%)

    Net Income = ($2,000) * (0.60)

    Net Income = $1,200

    Un-Adjustable Rate of Return = Net Income / Investment

    Un-Adjustable Rate of Return = $1,200 / $33,000

    Un-Adjustable Rate of Return = 3.64%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Jefferson Company is considering investing $33,000 in a new machine. The machine is expected to last five years and to have a salvage value ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers