Does the investment appear to be satisfactory

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Reference no: EM131149871

1. What is the (1) marginal and (2) average tax rate paid for a firm with taxable income of

(a) $30,000?
(b) $65,000?
(c) $125,000?
(d) $9 million?
(e) $16 million?

2. Xon, a small oil equipment company, purchased a new petroleum drilling rig for $1,800,000. Xon will depreciate it using MACRS depreciation The drilling rig has been leased to a firm, which will pay Xon $550,000 per year for 8 years. After 8 years the drilling rig will belong to the firm. If Xon has a 38% combined incremental tax rate and a 12% after-tax MARR, does the investment appear to be satisfactory?

3. Granny's Butter and Egg Business is such that she pays an effective tax rate of 40%. Granny is considering the purchase of a new Turbo Churn for $25,000. This chum is a special handling device for food manufacture and has an estimated life of 4 years and a salvage value of $5000. The new churn is expected to increase net income by $8000 per year for each of the 4 years of use. If Granny works with an after-tax MARR of 10% and uses MACRS depreciation, should she buy the churn?

Reference no: EM131149871

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