RD Resources is now considering the drilling of a new oil well. The well will cost $3,000,000 to drill and complete. The well is estimated to produce 25,000 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 $60. REQUIRED: (cca 25%; tax rate = 30%; required rate of return: 10%) 1. Compute the annual after tax cash flow from the new oil well (Calculate CCA for each year when calculating your annual after tax cash flow) (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). Tax Shield Formula: CdT d+r 1 +0.5r SdT 1 X X 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