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 company's tax bracket is 50%. It has also computed its MARR at 12% per year. The following table provides the company's anticipated yearly revenue and expenses. Note that the revenue and expenses are the same for years 3 through 10.
a. Compute the cash flows after taxes (CFAT) for years 1 through 10.
b. 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.