BC Resources is considering the drilling of a new oil well. The well will cost $2,500,000 to drill and complete. The well is estimated to produce 24,000 barrels of oil per year with a useful life of 5 years. Operating costs of the new well will be $7 per barrel. A new supervisor will be hired at an annual salary of $180,000 to oversee the drilling and operation of the new well. The selling price of a barrel of oil is $50. REQUIRED: (cca = 30%; tax rate = 30%; required rate of return: 12%) 1. Compute the annual after tax cash flow from (calculate CCA for each year) the new oil well (10 marks) 2. Using your answer from #1 above, calculate the payback (payout) period (7 marks) 3. Calculate the net present value of the oil well (8 marks) I Tax Shield Formula: CdT 1 +0.5r SdT 1 X X d+r 1+r d+r (1+r)^ C=cost of investment d = CCA rate T= corporate tax rate r = discount rate n = number of periods S=Salvage value