Question

San Marco has a $4,007,000 asset investment and is subject to a 30% income tax rate. Cash inflows related to the investment are expected to average $607,000 before tax over the next few years; in contrast, average income before tax is anticipated to be $508,000. The company's after-tax accounting rate of return is: g

Answer 1

the company after tax accounting rate of return is 8.87%

Step-by-step explanation:

The computation of the after tax accounting rate of return is shown below:

Average income after tax is

= before tax income × (1 - tax rate)

= $508,000 × (1 - 0.30)

= $508,000 × 0.70

= $355,600

Now the after tax accounting rate of return is

= (Average income after tax ÷ Investment) × 100

= ($355,600 ÷ $4,007,000) × 100

= 8.87%

Hence, the company after tax accounting rate of return is 8.87%