Reference no: EM13912719
A task force of capital budgeting analysts at Morrison Ltd. collected the following data concerning the drilling and production of known petroleum reserves at an offshore location:
Investment in rigging equipment and related personnel costs required to pump the oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,700,000
Net increase in inventory and receivables associated with thedrilling and production of the reserves. Assume this investmentwill be recovered at the end of the project . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
Net cash inflow from operations for the expected life of the reserves, by year:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,000
Salvage value of machinery and equipment at theend of the well's productive life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
Cost of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
Required:
a. Calculate the net present value of the proposed investment in the drilling and production operation. Assume that the investment will be made at the beginning of 2013, and the net cash inflows from operations will be received in a lump sum at the end of each year. Ignore income taxes, and round answers to the nearest $1.
b. What will the internal rate of return on this investment be relative to the cost of capital? Explain your answer.
c. Differences between estimates made by the task force and actual results would have an effect on the actual rate of return on the project. Identify the significant estimates made by the task force. For each estimate, state the effect on the actual ROI if the estimate turns out to be less than the actual amount finally achieved.
|
Review problem time value of money applications
: Review problem time value of money applications. Use the appropriate factors from Table 6 4 or Table 6 5 to answer the following questions.
|
|
Process improve blackspot''s profits
: You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to businesses. How much will this process improve BlackSpot's profits.
|
|
Find position and velocity
: A school bus heading east through a small town accelerates as it passes the sign post at s = 0. Marking the city limits. Its acceleration is constant 5 m/s^2 at time 0; it is 5 m east of the (+) sign post and has a velocity of 3 m/s.
|
|
Pc connection and cdw
: PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies.Over what range will changes..
|
|
A task force of capital budgeting analysts
: A task force of capital budgeting analysts at Morrison Ltd. collected the following data concerning the drilling and production of known petroleum reserves at an offshore location:
|
|
Law of equipartition of energy
: Define molar specific heat of a gas at constant volume (CV) and constant pressure (Cp). Obtain the ratio Cp/Cv for a hydrogen gas using the law of equipartition of energy.
|
|
Iron filings and repeat the experiment
: Make a small hole (5 mm dia) in the ball near the top. Fill it with sand and find its time period of oscillation. Empty the ball and fill it with steel balls/iron filings and repeat the experiment.
|
|
Forces of good army
: Suppose that the forces of good have an army of 1 million and the forces of evil have an army of 500,000.Using the rule of 70, in approximately how many years will the forces of evil catch-up with the forces of good.
|
|
Officer velocity relative to jed car
: By the time jed sees the officers motorcycle it was traveling at 60km/ hr. What is the officer's velocity relative to jed car.
|