Question

Carmino Company is considering an investment in equipment that is expected to generate an after-tax income...

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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