If a firm’s after-tax minimum attractive rate of retum is 12% and its combined incremental income tax rate is 34%, which alternative should be selected? Alt. AAlt. B $11,000 $33,000 Initial cost Uniform annual benefit 3,000 9,000 End-of-depreciable-life 2,000 3,000 salvage value Depreciation method End-of-useful-life SOYD SOYD 2,000 5,000 salvage value obtained Depreciable life, in years Useful life, in years 5
Expert Answer
For Alt. A, the following will be final value =
$(11,000-3,000-2,000) = $6,000.
For Alt. B, the following will be final value =
$(33,000-9,000-5,000) = $19,000.
So, Alt. A should be selected.