Problem
The Shellout Corp. owns a piece of petroleum drilling equipment that costs $100,000 and will be depreciated in 10 years by double declining balance depreciation, with conversion to straight-line depreciation at the optimal point. Assume no salvage value in the depreciation computation and a combined 34% tax rate. Shellout will lease the equipment to others and each year receive $30,000 in rent. At the end of 5 years, the firm will sell the equipment for $35,000. (Note that this is different from the zero-salvagevalue assumption used in computing the depreciation.) What is the after-tax rate of return Shellout will receive from this equipment investment?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.