Question
1.Xon, a small oil equipment company,bought a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using a 39% CCA rate. The
1.Xon, a small oil equipment company,bought a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using a 39% CCA rate. The drilling rig has been leased to a drilling company, which will pay Xon $450,000 per year for 8 years. After 8 years the drilling rig will belong to the firm. If Xon has a 34% incremental tax rate and a 10% after-tax MARR,does the investment appear to be satisfactory?
2.The Ogi Corporation, a construction company, purchased a pickup truck for $14,000 and used a CCA rate of 30% in the income tax return. During the time the company had the truck, they estimated that it saved $5000 a year. At the end of 4 years, Ogi sold the truck for $3000. The combined income tax rate for Ogi is 27%. Compute the after-tax rate of return for the truck.
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