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Pink Petunias, a wholesale nursery, is considering purchasing a new plot of land for their business...

Pink Petunias, a wholesale nursery, is considering purchasing a new plot of land for their business for $300,000. The land would allow Pink Petunias to increase their pre-tax cash flows by $90,000 each year. The company would plan to keep the land for 20 years before selling it for $300,000. Because the land is real property, the company would not take any related depreciation. Pink Petunias’ tax rate is 25%, and the required rate of return is 9%. What is the Average Rate of Return of the proposed investment? Group of answer choices 22.5% 30.0% 21.6%

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Answer #1
Average annual pretax cash flow 90000
Less: Tax 22500
Net Income After-tax 67500
Average Investment = ($300000+300000)/2
=$300000
Average Rate Of Return On Investment =$67500/300000
22.50%
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