59. The Mellow Machine Company is considering the addition of a computerized lathe to its equipment inventory. The initial cost of the equipment is P600,000, and the lathe is expected to have a useful life of five years and no salvage value. The cost savings and increased capacity attributable to the machine are estimated to generate increases in the firm’s annual cash inflows (before considering depreciation) of P180,000. The machine will be depreciated as follows for tax purposes:
Year
Depreciation
1
P200,000
2
266,700
3
88,860
4
44,440
Mellow is currently in the 40 percent tax bracket. A 10 percent after-tax rate of return is desired.(Round off your PV factors to 5 decimal places.)
What is the accounting rate of return based on initial investment?
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