An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000, and it has an estimated SV of $12,000 at the end of an estimated useful life of 10 years. During the depreciable life, it is estimated the firm will save $16,000 per year after all the costs of owning and operating the asset have been paid.

Assume an Effective Income Tax Rate of 0.3 and an After-tax MARR of 10%.

Part 1: Compute the depreciation amount and the BV at the end of each year of life by each of these methods:

a) The SL method.

b) The 200% DB method.

c) The GDS.

Part 2: For each of the aforementioned depreciation systems, conduct an After Tax Cash Flow Analysis and use the PW and IRR methods to determine whether the project (after taxes have been considered) is economically attractive