Question: Xon, a small oil company, purchased a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using MACRS depreciation . The drilling

Xon, a small oil company, purchased a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using MACRS depreciation. The drilling rig has been leased to a drilling company, which will pay Xon $450,000 per year for 8 years. At the end of 8 years the drilling rig will belong to the drilling company. If Xon has a 34% incremental tax rate and a 10% after-tax MARR, does the investment appear to be satisfactory?

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