Problem1. Copan Shipping just bought an oil tanker at a cost of $450 million. The tanker has an anticipated life of 20 years, with an anticipated salvage value of $20 million. But, the Tax Reform Act of 2006 specifies which oil tankers and transport ships might be depreciated by using straight-line depreciation over a 9-year life. The cost of operating the tanker is anticipated to be $10 million per year. Copan Shipping has a marginal tax rate of 30 percent and a required return of the 10 percent.
Find out the yearly after-tax cost of owning and operating the tanker:
Question1. Supposing that the cost of purchasing and operating sea-going vessels (e.g., oil tankers) are anticipated to remain constant over the next 20 years,
Question2. Supposing that the cost of purchasing and operating sea-going vessels (e.g., oil tankers) are anticipated to raise by 8 percent per year over the foreseeable prospect [Hint: If the cost of ships is increasing or diminishing at a constant rate over time, then you might reasonably suppose that the yearly cost of leasing the equipment will reduce steadily over time. Thus, you can approximate the impact of anticipated changes in the cost of ships by treating the after-tax annual equivalent cost of machine as a increasing annuity stream.]