Petroleum drilling equipment using rate of return analysis

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Reference no: EM131604547

The Intercontinental Drilling Company is considering a piece of petroleum drilling equipment that costs $111,000, utilizes MACRS depreciation, and has a combined 40% tax rate. The Capital Gains rate is 10%. Intercontinental will lease the equipment to others for the next 3 years and each year will receive $30,000 in rent in year 1, increasing annually by 10%. At the end of4 years, the firm can sell the equipment for $135,000. Determine if Intercontinental should purchase the equipment using rate of return analysis, if the aftertax MARR is 25%.

Reference no: EM131604547

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