Solution-Calculate the net present value of the oil well

Calculate the net present value of the oil well

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Reference no: EM132825196

Question - BC Resources is considering the drilling of a new oil well. The well will cost $2,500,000 to drill and complete. The well is estimated to produce 24,000 barrels of oil per year with a useful life of 5 years.

Operating costs of the new well will be $7 per barrel. A new supervisor will be hired at an annual salary of $180,000 to oversee the drilling and operation of the new well. The selling price of a barrel of oil is $50.

REQUIRED -

1. Compute the annual after tax cash flow from (calculate CCA for each year) the new oil well.

2. Using your answer from #1 above, calculate the payback (payout) period.

3. Calculate the net present value of the oil well.

Reference no: EM132825196

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Calculate the net present value of the oil well

Reference no: EM132825196

Reference no: EM132825196

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