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The Emporis Oil Corporation plans to invest $1 million in oil exploration. The corporation is considering...
The Emporis Oil Corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, 9% bonds would be issued at par. Under Plan #2, additional common shares would be sold at $20 per share. The corporation currently has 300,000 common shares outstanding, and total equity of $3,000,000. The corporation expects to earn $700,000 each year before bond interest and taxes. Calculate profit under each plan (assume a 50% tax rate) and comment on the relative effects of each alternative. Plan #1 Plan #2 Earnings before bond interest and taxes $700,000 $700,000 Bond interest expense 90,000 _______ Income before taxes $610,000 $700,000 Income taxes 305,000 350,000 Net income $305,000 $350,000
Solutions
ekkarill92 answered 2 years agoRelated Solutions
1) The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil on property...
1) The Ewert Exploration Company is considering two mutually
exclusive plans for extracting oil on property for which it has
mineral rights. Both plans call for the expenditure of $10 million
to drill development wells. Under Plan A, all the oil will be
extracted in 1 year, producing a cash flow at t = 1 of $12 million;
under Plan B, cash flows will be $1.75 million per year for 20
years.
a. What are the annual incremental cash flows...
An oil producer plans to sell 1 million barrels of crude oil one year from now....
An oil producer plans to sell 1 million barrels of crude oil one
year from now. The oil price in one year is normally distributed
with the mean of $80 per barrel and the standard deviation of $12
per barrel. What is the probability that the sales revenue is lower
than $50 millions
A)0.62%
B)41.75%
C)58.25%
D)99.38%
Drunken Sailor Oil Corporation is negotiating the purchase of 1 million barrels of oil to be...
Drunken Sailor Oil Corporation is negotiating the purchase of 1
million barrels of oil to be delivered and paid for in exactly 1
year. Drunken Sailor Oil Corporation is willing to pay $25 per
barrel because they can sell the oil in advance to oil refineries.
For political reasons, the oil exporter wants the contract
expressed in Danish kroner.
What price per barrel of oil expressed in Danish kroner is
equivalent to $25 if the Danish krone exchange rate is...
Hall Corporation plans to invest $5.5 million in rehabilitating a certified historic structure. Calculate the net...
Hall Corporation plans to invest $5.5 million in rehabilitating a
certified historic structure. Calculate the net present value of
this investment based on Hall's allowable rehabilitation credit.
Assume Hall uses a 5 percent discount rate to calculate present
value.
LifeCycle Biotech Company plans to invest $100 million into a new facility. It plans to use...
LifeCycle Biotech Company plans to invest $100 million into a
new facility. It plans to use $20 million from its reserves and
sell bonds at an interest rate of 4 percent to the public to raise
the remaining $80 million. At the same time the U.S. has a budget
deficit and decides to sell U.S. bonds to the public for 5
percent.
a) Will LifeCycle Biotech Company make the investment?
No
Yes
b) The government is now in competition with...
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil...
Nealon Energy Corporation engages in the acquisition,
exploration, development, and production of natural gas and oil in
the continental United States. The company has grown rapidly over
the last 5 years as it has expanded into horizontal drilling
techniques for the development of the massive deposits of both gas
and oil in shale formations. The company's operations in the
Haynesville shale (located in northwest Louisiana) have been so
significant that it needs to construct a natural gas gathering and
processing...
Explore Corporation, an independent oil and gas exploration and production company decides to hedge part of...
Explore Corporation, an independent oil and gas exploration and
production company decides to hedge part of their crude oil
production using a collar. Management has decided they want to lock
in a minimum price of $49.00 for the revenue they will receive for
100,000 barrels of production (for this problem assume production
occurs in 1 year, this is of course an oversimplification). The
company has also decided based upon their view of where oil prices
are going that they are...
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil...
Nealon Energy Corporation engages in the acquisition,
exploration, development, and production of natural gas and oil in
the continental United States. The company has grown rapidly over
the last 5 years as it has expanded into horizontal drilling
techniques for the development of the massive deposits of both gas
and oil in shale formations. The company's operations in the
Haynesville shale (located in northwest Louisiana) have been so
significant that it needs to construct a natural gas gathering and
processing...
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil...
Nealon Energy Corporation engages in the acquisition,
exploration, development, and production of natural gas and oil in
the continental United States. The company has grown rapidly over
the last 5 years as it has expanded into horizontal drilling
techniques for the development of the massive deposits of both gas
and oil in shale formations. The company's operations in the
Haynesville shale (located in northwest Louisiana) have been so
significant that it needs to construct a natural gas gathering and
processing...
Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil...
Nealon Energy Corporation engages in the acquisition,
exploration, development, and production of natural gas and oil in
the continental United States. The company has grown rapidly over
the last 5 years as it has expanded into horizontal drilling
techniques for the development of the massive deposits of both gas
and oil in shale formations. The company's operations in the
Haynesville shale (located in northwest Louisiana) have been so
significant that it needs to construct a natural gas gathering and
processing...
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