1. What happens to the ROC for a project if we use acclerated depreciation?
a. It would decrease the yearly ROC for the depreciation amounts greater than the straight-line amount.
b. It would increase the yearly ROC for the depreciation amounts less than straight-line amount.
c. It would likely increase the project's average ROC
d. Two of the above
e. All of the above.
2. You have been given the following information on a project:
It has a 3-year lifetime
The initial investment in the project will be $28 million, and the investment will be depreciated straight line, down to a salvage value of $6 million at the end of the fourth year.
The revenues are expected to be $20 million next year and to grow 6% a year after that for the remaining two (0) years.
The cost of goods sold, excluding depreciation, is expected to be 53% of revenues.
The tax rate is 0.36.
Estimate the after-tax return on capital, by year, to find the average for the project.
(Answer format is a zero, a decimal point, then 4 digits, for example 0.1234)