Dahlia Corporation, which is subject to a 30% income tax rate, is considering a $420,000 asset that will result in the following over its six-year life:
Average revenue: $920,000
Average operating expenses (excluding depreciation): $770,000
Average depreciation: $70,000
The after-tax accounting rate of return on the initial investment is:

Question

Quizplus · Accepted Answer

The after-tax accounting rate of return is calculated as (Net Income / Initial Investment). Net Income = (Revenue - Operating Expenses - Depreciation) * (1 - Tax Rate) = ($920,000 - $770,000 - $70,000) * (1 - 0.30) = $56,000. The initial investment is $420,000. Therefore, the after-tax accounting rate of return = $56,000 / $420,000 = 13.33%.

Dahlia Corporation, Which Is Subject to a 30% Income Tax