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# An oil company purchased a new oil drilling rig for \$325,000. A special tax law allows the company to recapture 80% of the initial cost of the rig over a 10 year period using straight line...

An oil company purchased a new oil drilling rig for \$325,000. A special tax law allows the company to recapture 80% of the initial cost of the rig over a 10 year period using straight line depreciation. The companyâ€™s tax bracket is 50%. It has also computed its MARR at 12% per year. The following table provides the companyâ€™s anticipated yearly revenue and expenses. Note that the revenue and expenses are the same for years 3 through 10.
1. Compute the cash flows after taxes (CFAT) for years 1 through 10.
2. Determine whether the company exceeds its own MARR after taxes.
 Year Income Expenses 0 \$325,000 1 \$120,000 \$70,000 2 \$140,000 \$72,000 3-10 \$210,000 \$85,000

Please show all procedures for better clarification. Thanks
Answered Same Day Dec 29, 2021

## Solution

David answered on Dec 29 2021
An oil company purchased a new oil drilling rig for \$325,000. A special tax law allows the company to
ecapture 80% of the initial cost of the rig over a 10 year period using straight line depreciation. The
companyâ€™s tax
acket is 50%. It has also computed its MARR at 12% per year. The following table
provides the companyâ€™s anticipated yearly revenue and expenses. Note that the revenue and expenses are
the same for years 3 through 10.
a....
SOLUTION.PDF