An oil and gas company is trying to determine whether or not it should replace a fixture on one of its offshore oll wells. The fixture would cost $63,000 and would generate annual savings of $24,000 for each of the next 4 years; at the end of 4 years, the fixture would have negligible salvage value. The fixture will be depreciated using MARS as 5-year property, the company's after-tax MARR is 7%, and the tax rate is 27%. Compute the Future Worth and use this to determine whether or not the company should replace the fixture.
An oil and gas company is trying to determine whether or not it should replace a fixture on one of its offshore oll wells. The fixture would cost $63,000 and would generate annual savings of $24,000 for each of the next 4 years; at the end of 4 years, the fixture would have negligible salvage value. The fixture will be depreciated using MARS as 5-year property, the company's after-tax MARR is 7%, and the tax rate is 27%. Compute the Future Worth and use this to determine whether or not the company should replace the fixture.
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
Problem 1PS
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Transcribed Image Text:An oil and gas company is trying to determine whether or not it should replace a
fixture on one of its offshore oll wells. The fixture would cost $63,000 and would
generate annual savings of $24,000 for each of the next 4 years; at the end of 4
years, the fixture would have negligible salvage value. The fixture will be
depreciated using MARS as 5-year property, the company's after-tax MARR
is 7%, and the tax rate is 27%. Compute the Future Worth and use this to determine
whether or not the company should replace the fixture.
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