Demand is expected to return to current levels

Assignment Help Financial Management

Reference no: EM131937488

Deep Water Drilling has operations off the coast of South America helping its clients (principally sovereign oil companies) tap into oil reserves located more than 10,000 feet below sea level. The Company estimates that increased demand for its services over the next three years will allow it to operate profitably four additional drilling rigs. After three years demand is expected to return to current levels, at which time any excess rigs can be sold for $25 million each. Each rig generates quarterly net cash flows of $15 million, payable in arrears. The acquisition cost of each rig is $200 million. The Company’s cost of capital is 6%. If Deep Water Drilling can add one rig every-six months, how many should it acquire, and why?

Reference no: EM131937488

Questions Cloud

Identify how authors applied statistical testing to problem : Identify how the authors applied statistical testing to the problem. Determine the hypothesis being tested and the concepts that were applied in this process.

Profitable to convert the bonds into common stock : MST's convertible bonds were trading at 1,021.25% of the face value of the bond. Is it profitable to convert the bonds into common stock in MST corp? Why?

What is your rate of return if the stock sells : Assume you purchased the right to sell 2,000 shares of JC Penney stock in January 2013 at a strike price of $27 per share. Suppose the stock sells for $25 per.

Find B adjusted tax basis in land after the distribution : TX8080 Homework. As of June 30, 2015, B's outside tax basis in ABC, GP is $50, B's adjusted tax basis in the Land after the distribution

Demand is expected to return to current levels : After three years demand is expected to return to current levels, at which time any excess rigs can be sold for $25 million each.

Find required rate of return on a stock with given beta : Assume that the risk-free rate is 3% and the required return on the market is 8%. What is the required rate of return on a stock with a beta of 0.8?

Healthcare policy issue discussion : How do the views of non-healthcare professionals (legislators or policymakers) contribute to the healthcare policy issue discussion?

Describe your proposed research design for problem statement : Create a 10- to 15-slide presentation with detailed speaker notes. Describe your proposed research design for your problem statement.

Manager on the importance of change management : Develop an argument to your manager on the importance of change management.

User Account

All Pages