Midway Printing Co. is considering the purchase of new electronic printing equip
ID: 2384617 • Letter: M
Question
Midway Printing Co. is considering the purchase of new electronic printing equipment. The new equipment would allow Midway to increase its annual before-tax profit by $118,000. Midway has a 30 percent tax rate. Other information about this proposed project follows:
rev: 02-28-2011
Requirement 1:
Calculate Midway's annual rate of return.(Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Initial investment $410,000 Useful life 5 years Salvage value $80,000
Explanation / Answer
Annual ROE = 8.88% Annual Depreciation: $410,000 - $80,000 = $330,000 / 5 years = $66,000 per year Income Generation Annually: $118,000 Net Income Annually: $118,000 - $66,000 = $52,000 Apply 30% Tax: $118,000 * 0.7 = $36,400 Annual ROE: $36,400 / $410,000 = 8.88%