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Garage Corporation's return on investment (ROI) on some new equipment was 20% using beginning-of-year net book...

Garage Corporation's return on investment (ROI) on some new equipment was 20% using beginning-of-year net book value. The gross book value of the equipment is $250,000. Accumulated depreciation at the beginning of the year was $10,000. This represents one-half year's straight-line depreciation. What is the annual before-tax cash flow from the new equipment?

      A. $60,000

  B. $68,000

  C. $48,000

  D. $20,000

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Answer #1

(operating Income - $20,000) / ($250,000 - $10,000) = 0.20

Operating Income - $20,000 = 0.20 * ($250,000 - $10,000)

Operating Income - $20,000 = $48,000

Operating Income = $68,000

Option 'B' is correct.

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