Poseidon is considering opening a shipping line from Athens to Rhodes. In order to open the
shipping line Poseidon will have to purchase two ships that cost 1,000 gold coins each. The life span of each ship is 10 years, and Poseidon estimates that he will earn 300 gold coins in the first year and that the earnings will increase by 5% per year. The annual costs of the shipping line are estimated at 60 gold coins annually, Poseidon’s interest rate is 8% and Zeus’s tax rate is 50%.
a) Will the shipping line be profitable?
b) Due to Poseidon’s good connections on Olympus he can get a tax reduction. What is
the maximum tax rate at which the project will be profitable?