Garage Corporation's return on investment (ROI) on some new equipment was 20% using beginning-of-year net book value. The gross book value of the equipment is $250,000. Accumulated depreciation at the beginning of the year was $10,000. This represents one-half year's straight-line depreciation. What is the annual before-tax cash flow from the new equipment?
A) $68,000.
B) $60,000.
C) $48,000.
D) $20,000.

Question

Quizplus · Accepted Answer

The annual before-tax cash flow from the new equipment is $68,000. This is calculated by multiplying the ROI by the beginning-of-year net book value of the equipment. The net book value is calculated by subtracting the accumulated depreciation from the gross book value. In this case, the net book value is $250,000 - $10,000 = $240,000. The ROI is 20%, so the annual before-tax cash flow is $240,000 * 0.20 = $68,000.

Garage Corporation's Return on Investment (ROI) on Some New Equipment