The ABC corporation is contemplating purchasing a new computer system thatwould yield a before-tax return of 30 percent. The system depreciates at 10percent a year. The after-tax interest rate is 8 percent, the corporation tax rate is35 percent, and depreciation allowances follow the straight-line method over fiveyears. There is no investment tax credit. Do you expect ABC to buy the newcomputer system? Explain your answer. [Hint: Use Equation (22.6).]
The ABC corporation is contemplating purchasing a new computer system that would yield a before-tax return of 30 percent. The system depreciates at…
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