Carmino Company is considering an investment in equipment that is expected to generate an after-tax income of $3,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 30% tax bracket. The net book value (NBV) of the investment at the beginning of each year is expected to be as follows:
Year 1 | $ | 15,000 | |
Year 2 | 7,500 | ||
Year 3 | 4,500 | ||
Year 4 | 2,250 | ||
Calculate this asset's accounting (book) rate of return (ARR) on average investment (which is defined as a simple average of the average book value of the asset for each year of its four-year life). Round the final answer to the nearest whole %.
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