A medium-sized profitable corporation may buy a $25,000 F-150 for use by the shipping and receive department. During the truck’s 5-year useful life, it is estimated the firm will save $6000 per year after all the costs of owning and operating the truck have been paid. Truck salvage value is estimated at $13,000. So that this can be solved using an equation or annuity function rather than a full spreadsheet, assume that straight-line depreciation is used.
(a) What is the before-tax rate of return?
(b) What is the after-tax rate of return on this capital expenditure? Assume straight-line depreciation.