Xon, a small oil equipment company, purchased a new petroleum drilling rig for $2,000,000. Xon will depreciate it using MACRS depreciation. The drilling rig has been leased to a firm, which will pay Xon $750,000 per year for 8 years. After 8 years the drilling rig will belong to the firm. Xon has a 28% combined incremental tax rate and a 20% after-tax MARR (a) Does the investment appear to be satisfactory? (b) Some claim that the coal and/or oil industries are inherently unsustainable and harmful to the environment. Develop a short position summary to support and challenge this perspective.
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