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An oil company has paid $100,000 for the right to pump oil on a plot of land during the next three years. A well has already been sunk and all other necessary facilities are in place. The land has known reserves of 60,000 barrels. The company wishes to know the market value of this operation. The interest rate8% and the marginal cost of pumping is $8 per barrel. Both these costs are expected to remain unchanged over the three-year period. The current price of oil is $10 per barrel. Company economists have estimated the following:i) Oil will increase in price by 10% with a probability of 40%, or decrease in price by 12% with a probability of 60% during each of the next three yearsii) The cost of storing oil in above-ground tanks is $0.50 per yeariii) The company can pump a maximum of 20,000 barrels per year at the site. iv) The site may be shut down for a year and then reopended at a cost of $2,000.Determine the market value of the operation ignoring taxes. Assume that all cash flows occur at the end of each year. (Hint: Chart all possible sequences of oil prices, and calculate the optimal production decisions and payoffs associated with each sequence.)
Suppose we are thinking about replacing an old computer with a new one.
What will be the annual net savings? Assume that the T-bill rate is 2.6 percent annually.
How much does Dynamo currently pay in interest, and how much will it have to pay after the restructuring in the prior problem, assuming that the cost of debt is constant?
Cart sales are expected to be $2,400 a year for four years. After the four years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?
By how much does the required return on the riskier stock exceed the required return on the riskier stock exceed that on the less risky stock? Round your answer to two decimal places.
xyz company has sales of 15450 costs of 4800 depreciation expense of 1900 and interest expense of 1250. if the tax rate
Suppose you decide to purchase a home and you secure a 30-year, $285,000 loan at an annual interest rate of 6.5%.
The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?
The preferred stock of Ultra Corporation pays yearly dividend of $6.30. It has a required rate of return of 9 percent. Determine the price of the preferred stock.
according to MM proposition I with taxes, what would be the increase in the value of the company after the loan?
Company A shares are currently trading at $20 per share. A survey of Wall Street analysts reveals that EPS expectations for Company A for the full year 2008 are $1.50 per share.
The bid rate of the New Zealand dollar is $.323 while the ask rate is $.325 at Bank Y. What would be your dollar amount profit if you use $2,000,000 to execute locational arbitrage?
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