A $78,000 invtestment in machinery is proposed. It is anticipated that this investment will cause a reduction in net annual operating disbursements fo $16,300 a year for 12 years. The investement will be depreciated for income tax purposes for the (a) years-digits method using a 12-year life and zero salvage value. The forecast of zero value is also to be used in the economy study. The applicable income tax rate is 48%. What are the prospective rates of return before and after income taxes?
(b) Compute the after-tax rate of return using straight line depreciation for tax purposes
(c) Computer the after-tax rate of return assuming a 10% investment tax credit taken at year zero.