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Xon, a small oil equipment company, purchased a new petroleum drilling rig for S2,000,000. Xon will depreciate it using MACRS depreciation. The drilling rig has been leased to a fim, which will pay Xon $750,000 per year for 8 years. After 8 years the drilling rig will belong to the fim. The firm has a 24% combined marginal income tax rate. What is the after-tax rate of retum?

Xon, a small oil equipment company, purchased a new petroleum drilling rig for S2,000,000. Xon will depreciate it using MACRS depreciation. The drilling rig has been leased to a fim, which will pay Xon $750,000 per year for 8 years. After 8 years the drilling rig will belong to the fim. The firm has a 24% combined marginal income tax rate. What is the after-tax rate of retum?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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5. Xon, a small oil equipment company, purchased a new petroleum drilling rig for S2,000,000. 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. The firm has a 24% combined marginal income tax rate. What is the after-tax rate of return?
Transcribed Image Text:5. Xon, a small oil equipment company, purchased a new petroleum drilling rig for S2,000,000. 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. The firm has a 24% combined marginal income tax rate. What is the after-tax rate of return?
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