Question
In: Finance
Your firm’s geologists have discovered a small oil field in New York’s Westchester County. The field...
Your firm’s geologists have discovered a small oil field in New York’s Westchester County. The field is forecasted to produce a cash flow of C1 $2 million in the first year. You estimate that you could earn an expected return of r 12% from investing in stocks with a similar degree of risk to your oil field. Therefore, 12% is the opportunity cost of capital. What is the present value? The answer, of course, depends on what happens to the cash flows after the first year. Calculate present value for the following cases:
a. The cash flows are forecasted to continue for 20 years only, with no expected growth or decline during that period
b. The cash flows are forecasted to continue for 20 years only, increasing by 3% per year because of inflation
c. Evaluate the cashflows in a and b and explain which one you will choose and why
PLEASE SOLVE PART C IN EXCEL AND WRITE ALL FORMULAS! THANK YOU VERY MUCH! IT MUST BE UPLOADED TODAY!
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Your firm’s geologists have discovered a small oil field in New York’s Westchester County. The field...
Your firm’s geologists have discovered a small oil field in New
York’s Westchester County. The field is forecasted to produce a
cash flow of C1 $2 million in the first year. You estimate that you
could earn an expected return of r 12% from investing in stocks
with a similar degree of risk to your oil field. Therefore, 12% is
the opportunity cost of capital. What is the present value? The
answer, of course, depends on what happens to the...
An investor discovered that there is no oil change service available in the small town that...
An investor discovered that there is no oil change service
available in the small town that he has recently moved to and
decides to open a shop offering this service. The estimated market
demand for the oil change service is given by P=400-10Q. The total
cost of the oil change service is TC=150Q²+200 and the marginal
cost is MC=30Q
a) If the investor engages in perfect price
discrimination, how many oil change services will he offer? What
would be his...
"An oil and gas company is considering whether to begin drilling a new oil field. The...
"An oil and gas company is considering whether to begin drilling
a new oil field. The company will need to pay $4.6 million as an
initial investment in order to extract the oil. The company will
operate the field for a total of 5 years, during which its annual
profit will be $3,344,000. During the 6th year, the company will
not operate or gain any revenue from the oil field, but it will
need to pay $8,990,000 in environmental remediation...
Ewing Oil Company (EOC) is examining a new oil field. If EOC drills today, it will...
Ewing Oil Company (EOC) is examining a new oil field. If EOC
drills today, it will cost $9 million and the oil field is expected
to create cash flows of $3.5 million per year for the next 5 years.
Alternatively, the company could spend $350,000 today for a
geological survey. The survey would take two years and result in a
better estimate of the oil field’s resources. There is an 80
percent chance that the survey would find the oil...
New Century Energy Partners, Ltd. plans to explore a new oil field to expand its overseas...
New Century Energy Partners, Ltd. plans to explore a
new oil field to expand its overseas operations. This capital
investment project requires an initial outlay of $10 million and it
is expected to generate annual cash flows of $3 million for a
period of five years. At the end of the sixth year, the firm will
incur shut-down and clean-up costs of $2 million.
Assuming that projects of similar risk have a cost of capital is
11%, what is the...
You have been asked to replace the project manager who was heading up your firm’s new...
You have been asked to replace the project manager who was
heading up your firm’s new compensation and benefits system. One of
the reasons the project manager is being replaced is because the
project schedule had the wrong resources assigned (e.g., resources
who do not fully understand compensation and benefits). You have
been asked to solve this problem quickly by either replacing the
resources or getting the resources up-to-speed on compensation and
benefits. Present your recommendation for solving this critical...
You have determined that your firm’s own-price elasticity is -1.5 and that your firm’s cross-price elasticity...
You have determined that your firm’s own-price elasticity is
-1.5 and that your firm’s cross-price elasticity with a competitor
is 0.5. Last month your competitor increased prices by one percent.
Today, in response, your manager has proposed also increasing
prices by one percent. Your manager’s reasoning that by matching
the competitor’s price increase, your firm will increase revenue.
Would you support or refute your manager’s argument?
Examine the competitiveness of your firm’s home country in a particular sector(eg Oil and Gas, Construction...
Examine the competitiveness of your firm’s home country in a
particular sector(eg Oil and Gas, Construction etc) in the light of
Porter's Diamond Model. Identify a specific cluster (a city or
region) in the home country where chosen industry is competitive
and give your recommendation to further improve the competitiveness
of that cluster by benchmarking with one of the best clusters
(Stuttgart, Germany for Automotive cluster) in the world for same
industry
You have just been appointed as the County Commissioner of Hazard County. Your first day on...
You have just been appointed as the County Commissioner of
Hazard County. Your first day on the job you have the following
conversations:
Ludwig mentions that Frank, the local rancher, is inflating
land prices by buying too much land.
This is an example of _______.
(a negative externality
a pecuniary externality
a positive externality
not an externality)
George mentions that Ms. Daisy has planted some lovely new roses
in front of her store.
This is an example of ______.
(a...
Your firm is planning to hold an auction to sell its oil field. What type of...
Your firm is planning to hold an auction to sell its oil field.
What type of auction should you suggest to your boss? Why?
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