What is the aftertax rate of return of the below asset Initi

What is the after-tax rate of return of the below asset?

Initial Cost = $20000; Useful life = 4 years;

Annual net saving= $1000, 1500, 2000, 2500; Salvage value = $20000,   non-depreciable asset; tax rate 39%

(Please provide your answer as a percentage for example 3.2%.)

Solution

Total return = Savings*(1-Tax) + Profit on sale after tax

=(1000+1500+2000+2500)*(1-0.39)+ (20000-20000)

= $4270

After tax rate of return= 4270/20000 = 21.35%