Calculate project before-tax cash flow for evaluation period

Assignment Help Financial Management

Reference no: EM131337956

An oil lease containing an estimated 2,000,000 barrels of oil may be obtained at time zero for a lease bonus cost of $7,000,000. Additional time zero geological and geophysical (g&g) costs are estimated to total $700,000. These acquisition and g&g costs would be followed by development of the lease and would involve an end of year 1 investment of $5,000,000 in intangible drilling costs and $4,000,000 in tangible completion costs and equipment. Production in year 1 is estimated at 150,000 STB. Year 2 production is estimated at 350,000 STB with 275,000 STB in year 3and 200,000 STB in year 4 when it is expected that the property would be sold for $8,000,000 at the end of year 4. Assume a uniform selling price of $75.00 per barrel over the 4-year producing period. Operating costs are estimated to be $15.00 per barrel and also forecasted to remain constant. Royalties are estimated at 12.5% of gross revenue. The discounting rate is 15%. Calculate the project before-tax cash flows for evaluation period 0 through 4 and determine the net present value of the project.

Reference no: EM131337956

Questions Cloud

What is the length of the firm cash converstion cycle : Balloon Payment Financial (BPF) has an inventory conversion period of 45 days, a receivable collection period of 30 days and a payables deferral period of 20 days. What is the length of the firm's cash converstion cycle? If BPF's annual sales are $1...

What is the amount of the line of credit reported : Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as ..

Calculate the non-operating terminal year cash flow : Pierre Imports is evaluating the proposed acquisition of new equipment at a cost of $900,000. In addition the equipment would require modifications at a cost of $50,000 plus shipping costs of $10,000. Calculate net operating cash flows in years 1, 2,..

What is Project IRR-NPV and Payback Period : You will be evaluating three projects for Hasbro Toys. Hasbro's cost of capital or discount rate is 9%. The first project (A) will cost $30,000 initially. The project will then return cash flows of $7,000 for 5 years. What is Project A's NPV? What is..

Calculate project before-tax cash flow for evaluation period : An oil lease containing an estimated 2,000,000 barrels of oil may be obtained at time zero for a lease bonus cost of $7,000,000. Additional time zero geological and geophysical (g&g) costs are estimated to total $700,000. Calculate the project before..

What is maximum price that hastings would bid for vandell : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.25 (given its target capital structure). Vandell's debt interest rate i..

What interest rate do you have to earn-monthly compounding : Suppose that you have $50,000and need to invest it so that you will have $1,000,000 twenty years from now to repay a debt. What interest rate do you have to earn, assuming monthly compounding?

Which portfolio makes most sense from society standpoint : A bank can invest in 2 portfolios. Each requires $100 million to be raised either through debt or equity. One portfolio contains only safe assets and payts a certain gross return of 118 million. Which portfolio makes the most sense from society's sta..

Explain what target capital structure : Explain what target capital structure is and provide examples of the capital structures from two firms from two different industries. Provide your explanation for the differences in capital structures.

User Account

All Pages