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Capital investment was $400 million. Suppose this amount amount can be depreciated immediately for tax purposes. The marginal tax rate, including California taxes, is 25%,
Capital investment was $400 million. Suppose this amount amount can be depreciated immediately for tax purposes. The marginal tax rate, including California taxes, is 25%, the cost of capital is 7%, and there is no inflation. The refinery improvements have an economic life of 25 years.
a. Calculate the after-tax equivalent annual cost.
b. How much extra would retail gasoline customers have to pay to cover this equivalent annual cost? (extra income from higher retail prices would be taxes).
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