Drilling rig will belong to the firm

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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?

Reference no: EM13742974

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