Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please hand writw answer cannot use excel Oil Drilling company is considering installation of a new automated drilling equipment. The new equipment can be installed

image text in transcribed
please hand writw answer cannot use excel
Oil Drilling company is considering installation of a new automated drilling equipment. The new equipment can be installed for $11,750,000 today and will have a life of 6 years until technological obsolescence due to rapid advances in drilling control technology. At the end of its 6-year life, its components will have a salvage value of $2,750,000, and it will cost $324,500 to have the equipment removed. The equipment will be depreciated under MACRS. The equipment will produce $7,975,000 additional sales capacity per year due to productivity gains. Additional technical labor cost will be $2,305,000 per year and operating and maintenance costs will be $885,000 per year. The company is in a western state with no corporate income taxes and is in the 35% federal tax bracket. Estimate both the annual net income and annual cash flow. The company's MARR for this project is 20.0%. Based on net present value estimate, do you recommend installing the automated refining line? What is the equivalent uniform annual worth and IRR of the project

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

8th Edition

0077606779, 978-0697789945

More Books

Students also viewed these Finance questions

Question

=+What does this say for the future of the business case for CSR?

Answered: 1 week ago