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A petroleum project involves production of crude oil from a 5,000,000 barrel reserve Time zero mineral rights acquisition cost (lease bonus) of $2,000,000 is the basis for cost depletion (Use cost depletion analysis). Intangible drilling expenses of $1,500,000 will be incurred in time zero (Expense 100% of intangible drilling costs in time zero). Tangible producing equipment costing $3,000,000 at time zero will go into service in year one and be depreciated using double declining balance (on the 7-year depreciation basis) beginning in year one. Production is estimated to be 350,000 barrels per year. Well-head crude oil value before transportation cost is estimated to be $42.00 per barrel in year one, $43.00 per barrel in year two, and $44.00 per barrel in year three. Royalties are 10.0% of revenues (well-head value) each year. Operating costs are expected to be $3,000,000 in year one, $3,300,000 in year two, and $3,600,000 in year three. The effective income tax rate is 40.0%. No other income taxes exist against which to use deductions, so all negative taxable income will be carried forward until used against project income (stand-alone analysis). Determine the before- and after-tax cash flows for years 0, 1, 2, and 3.
Jack has found a really cheap small cap food stock that markets snacks. Calculate the enterprise value or firm value of the company?
The next dividend payment by Wyatt, Inc., will be $3.40 per share. The dividends are anticipated to maintain a growth rate of 7.75 percent, forever. Assume the stock currently sells for $50.40 per share. What is the dividend yield? What is the expect..
The Cavo Company has an ROA of 8.8 percent, a profit margin of 8.50 percent, and an ROE of 14.50 percent. Requirement 1: What is the company’s total asset turnover? Requirement 2: What is the equity multiplier?
Merck wants to develop a promising new NCE [New Chemical Entity] costing $800 million to $1 billion to bring through clinical trials to market. How would it expect to finance this project? What would the impact be on its D/E?
What are the beta of Stock X and Stock Y? What are the systematic risk and unsystematic risk of Stock X?
Suppose we observe the three-year Treasury security rate to be 12%, the expected one-year rate next year - E(2r1) - to be 8% and the expected one-year rate the following year - E(3r1) - to be 9%.
Explain the passive and active equity portfolio management techniques, providing examples where possible. How do the goals differ for portfolio managers for each technique?
How do these following categorize into long-run or short-run: Direct foreign investment, Portfolio investment, Financial derivative and other investment ?
You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money: Calculate the value of each investment based on you required rates of return. Which investment would you s..
In the foreseeable future, the real risk-free rate of interest, r*, is expected to remain at 3%, inflation is expected to steadily increase, and the maturity risk premium is expected to be 0.1(t 1)%, where t is the number of years until the bond matu..
You have $134,000 to invest in a portfolio containing Stock X and Stock Y. What is the beta of your portfolio?
Mike Bloom has just received a golden handshake of $5 million from his former partners. His plan is to use the money to start a new financial information service, and he is willing to invest all of the money, if necessary. His goal is to realize an a..
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