Question

1. You are planning to invest in a productive oil well that is expected to produce 2,000 barrels of oil per year for 10 years. The current price of oil is $42 per barrel, but the price is expected to increase at a rate of 3 percent per year for the next 10 years. If your opportunity cost of funds is 8.25 percent p.a., what would be the upper limit of how much you would be willing to pay for this investment?

Answer 1

CURRENT PRICE PER BARREL $42
INCREASE IN PRICE PER YEAR 3%
YEARS		EXPECTED PRICE PER BARREL		TOTAL SALES		PV FACTOR	PV
		(CURRENT PRICE + 3%)		(PRICE*2000 BARRELS)
1		43.26		86520.00		0.92		79598.4
2		44.56		89115.60		0.85		75748.26
3		45.89		91789.07		0.79		72513.36
4		47.27		94542.74		0.73		69016.2
5		48.69		97379.02		0.67		65243.94
6		50.15		100300.39		0.62		62186.24
7		51.65		103309.40		0.57		58886.36
8		53.20		106408.69		0.53		56396.6
9		54.80		109600.95		0.49		53704.46
10		56.44		112888.98		0.45		50800.04
								644093.9
CONCLUSION:-	THE UPPER LIMIT FOR INVESTMENT WILL BE $644093.90
CURRENT PRICE PER BARREL $42
INCREASE IN PRICE PER YEAR 3%
YEARS		EXPECTED PRICE PER BARREL		TOTAL SALES		PV FACTOR	PV
		(CURRENT PRICE + 3%)		(PRICE*2000 BARRELS)
1		43.26		86520.00		0.92		79598.4
2		44.56		89115.60		0.85		75748.26
3		45.89		91789.07		0.79		72513.36
4		47.27		94542.74		0.73		69016.2
5		48.69		97379.02		0.67		65243.94
6		50.15		100300.39		0.62		62186.24
7		51.65		103309.40		0.57		58886.36
8		53.20		106408.69		0.53		56396.6
9		54.80		109600.95		0.49		53704.46
10		56.44		112888.98		0.45		50800.04
								644093.9
CONCLUSION:-	THE UPPER LIMIT FOR INVESTMENT WILL BE $644093.90			jeff jeffy Next > < Previous Related Solutions You are investigating the possibility of investing in a productive oil well that is expected to... You are investigating the possibility of investing in a productive oil well that is expected to produce 2,500 barrels of oil per year for 5 years. The current price of oil is $70 per barrel, but the price is expected to increase at a constant rate of 3 percent per year for the next 5 years. If your opportunity cost of funds is 13.50 percent p.a., what would be the upper limit of how much you would be willing to... Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its... Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its first production year However its subsequent production (yield) is expected to decrease by 9% over the previous year's production The oil well has a proven reserve of 10, 50 barrels. (a) Suppose that the price of oil is expected to be $120 per barrel for the next six years. What would be the present worth of the anticipated revenue trim at an interest rate... Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its... Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its first production year. However, its subsequent production (yield) is expected to decrease by 9% over the previous year's production. The oil well has a proven reserve of 10,500,000 barrels. Suppose that the price of oil is expected to be $120 per barrel for the next six years. What would be the present worth of the anticipated revenue trim at an interest rate of 10%... You plan to invest $4 million in the construction of an oil well which has a... You plan to invest $4 million in the construction of an oil well which has a potential revenue of $10 million. The oil well will be located in the Golf of Mexico. As we all know, this region is constantly hit by hurricanes. Assuming that if there is a hurricane of category 1 or 2, this will disrupt your production and the well will produce half its capacity, and if there is a category 3 or 4, your well will... 1)Swift Oil Company is considering investing in a new oil well. It is expected that the... 1)Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $132,000 and will increase annual expenses by $81,000 including depreciation. The oil well will cost $474,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 12.47.) 2)Caine Bottling Corporation is considering the purchase of a new bottling machine.... Elvis Inc. is planning to establish a subsidiary in Australia to produce canola oil. The manufacturing... Elvis Inc. is planning to establish a subsidiary in Australia to produce canola oil. The manufacturing facility will cost the parent company an initial investment of 5 million U.S. dollars (US$) to set up. The project will end in 3 years. At the end of the project, Elvis will sell the Australian subsidiary for A$8 million to an Australian agriculture firm. This amount is net of capital gain tax and is not subject to the withholding tax. Elvis estimates the... Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec... Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec 2020. You think that the price of oil in Dec would be in the range of $50 – $55 per barrel. Show how would you use the futures contract to hedge against oil revenue loss (assume each futures contract calls for the delivery of 1,000 oil barrels and the current futures price is $52.5 per barrel) or against a future price reduction (hint: develop... Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec... Assume that you invest in oil, and you plan to sell 350,000 oil barrels in Dec 2020. You think that the price of oil in Dec would be in the range of $50 – $55 per barrel. Show how would you use the futures contract to hedge against oil revenue loss (assume each futures contract calls for the delivery of 1,000 oil barrels and the current futures price is $52.5 per barrel) or against a future price reduction (hint: develop... Identify a company that you would like to invest in. If you were planning to invest... Identify a company that you would like to invest in. If you were planning to invest in this particular company, which of the three types of financial statements would you most want to see? Why? E25-1 Parsons Company is planning to produce 2,000 units of product in 2017. Each unit requires... E25-1 Parsons Company is planning to produce 2,000 units of product in 2017. Each unit requires 3 pounds of materials at $5 per pound and a half-hour of labor at $16 per hour. The overhead rate is 70% of direct labor. Instructions (a) Compute the budgeted amounts for 2017 for direct materials to be used, direct labor, and applied overhead. (b) Compute the standard cost of one unit of product. (c) What are the potential advantages to a corporation of... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions When it comes to a terminally ill person, what is the moral difference between artifically ending... Remarks: In all algorithm, always explain how and why they work. If not by proof, at... What was Netflix's initial business model? Did it work? How did it evolve? Is this an... )While referencing the concept of globalization, discuss how applied linguistic anthropology is relevant to all societies... A 2.40 kg box is moving to the right with speed 9.00 m/s on a horizontal,... Write a program in C++ that converts decimal numbers to binary, hexadecimal, and BCD. You are... 1. Project L costs $35,000, its expected cash inflows are $14,000 per year for 8 years,... ADVERTISEMENT About @ 2020 WizEdu