Refer back to E12-9 to address the following. Instructions Prepare a memo to Maria Fierro, your supervisor.

Question:

Refer back to E12-9 to address the following.

Instructions

Prepare a memo to Maria Fierro, your supervisor. Show your calculations from E12-9, (a) and (b).

In one or two paragraphs, discuss important non-financial considerations. Make any assumptions you believe to be necessary. Make a recommendation based on your analysis.

Data From E12-9

Mecha Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $70,000 including depreciation. The oil well will cost $470,000 and will have a $10,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...