San Remo has a $4,000,000 asset investment and is subject to a 30% income tax rate. Cash inflows are expected to average $600,000 before tax over the next few years; in contrast, average income before tax is anticipated to be $500,000. The company's after-tax accounting rate of return is:

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The after-tax accounting rate of return is calculated as (Average income before tax - Taxes) / Asset investment. In this case, the average income before tax is $500,000, the tax rate is 30%, and the asset investment is $4,000,000. Therefore, the after-tax accounting rate of return is ($500,000 - $150,000) / $4,000,000 = 8.75%.

San Remo Has a $4,000,000 Asset Investment and Is Subject