Determine investor after-tax rate of return on investment

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Reference no: EM13938297

An investor bought a racehorse for $14 M. The horse’s average winnings were $5,300,000 per year and expenses averaged $500,000 per year.

The horse was retired after 2 years, at which time it was sold to a breeder for $9,500,000. Assuming 3 year MACRS life for a racehorse and an income tax rate of 39%, determine the investor’s after-tax rate of return on this investment.

A. The before-tax cash flow for the first two years.

B. The book value at the end of the second year.

Reference no: EM13938297

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