Compute the cash flows after taxes cfat for years 1 through

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An oil company purchased a new oil drilling rig for $325,000. A special tax law allows the company to recapture 80% of the initial cost of the rig over a 10 year period using straight line depreciation. The company's tax bracket is 50%. It has also computed its MARR at 12% per year. The following table provides the company's anticipated yearly revenue and expenses. Note that the revenue and expenses are the same for years 3 through 10.

a. Compute the cash flows after taxes (CFAT) for years 1 through 10.

b. Determine whether the company exceeds its own MARR after taxes.

Year

Income

Expenses

 

 

 

 

 

0

 

$325,000

 

 

 

 

 

1

$120,000

$70,000

 

 

 

 

 

2

$140,000

$72,000

 

 

 

 

 

3-10

$210,000

$85,000

 

 

 

 

 

Please show all procedures for better clarification.

Reference no: EM13586687

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