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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.
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