Question

please show work

please help and show work not jist excel ale 1231 Xon, a small oil equipment company, purchased a new petroleum drilling rig for $2,000,000. Xon will depreciate it using MACRS depreciation. The drilling rig has been leased to a firm, which will pay Xon $750,000 per year for 8 years. After 8 years the drilling rig will belong to the firm. Xon has a 28% combined incremental tax rate and a 20% after-tax MARR (a) Does the investment appear to be satisfactory? Problems 445 (b) Some claim that the coal and/or oil industries are inherently unsustainable and harmful to the envi- ronment. Develop a short position summary to support and challenge this perspective.

Answer 1

		Purchase Price	2000000
		Lease rate	750000
		Lease period	8
		Incremental tax rate	28%
		After tax MARR	20%
	** Dereciation table is fixed as MARCS for different life span of asset
Year	Cash flow	Rate of depreciation As per table	Depreciation	Taxable income	Tax @28%	After tax cash flow	MARR @20%	NPV
0	-2000000						1	-1800000
1	750000	10.00%	180000	570000	159600	590400	89.29%	527143
2	750000	18.00%	324000	426000	119280	630720	79.72%	502806
3	750000	14.40%	259200	490800	137424	612576	71.18%	436019
4	750000	11.52%	207360	542640	151939	598061	63.55%	380078
5	750000	9.22%	165960	584040	163531	586469	56.74%	332778
6	750000	7.37%	132660	617340	172855	577145	50.66%	292400
7	750000	6.55%	117900	632100	176988	573012	45.23%	259202
8	750000	6.55%	117900	632100	176988	573012	40.39%	231430
	NPV							1161856

In the above calculation, we find the NPV and rate of return higher than MARR hence this investment seems to be fruitfull.