(d) On what basis should management select from these two methods to depreciate the machine? Justify in your own words (e) What do you feel may be the difference between these two methods of computing depreciation? Explain in your own words

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Problem 9-25 Fudge factors An oil company executive is considering investing $10.1 million in one or both of two wells: well 1 is expected to produce oil worth $3.01 million a year for 10 years; well 2 is expected to produce $2.01 million for 15 years. These are real (inflation-adjusted) cash flows. The beta for producing wells is 0.91. The market risk premium is 9%, the nominal risk-free interest rate is 7%, and expected inflation is 3%. The two wells are intended to develop a previously discovered oil field. Unfortunately there is still a 21% chance of a dry hole in each case. A dry hole means zero cash flows and a complete loss of the $10.1 million investment. Ignore taxes and make further assumptions as necessary. a. What is the correct real discount rate for cash flows from developed wells? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real discount rate b. The oil company executive proposes to add 20 percentage points to the…