Reference no: EM133080183
Questions -
Q1. You buy and sell mobile phones. Someone is offering you a chance to buy their used phone. They are willing to sell their used I-phone 12 to you for $ 600. The screen is broken. To repair, it would cost you $ 200. Because of the supply chain crunch, you can only order materials in next year (year 1). Once you repair it, you would be able sell the phone for $ 1,000 (year 1). Would you undertake this project?
Q2. For question number 1, calculate the NPV using the discounted cash flow approach. Assume interest rate is 5% per annum.
Q3. Shell is evaluating whether to construct oil well in Lethbridge, Alberta. Constructing the oil well will cost $ 14 million now. It would take 1 year to construct the well. The following will be the output from the oil well once it is constructed.
First year: 60,000 barrels.
Second year: 70,000 barrels
Third year: 80,000 barrels
Fourth year: 100,000 barrels.
Fifth year: No oil production but shell must decommission oil well and it expects to pay around $ 1 million as a decommissioning cost.
The current price of crude oil per barrel is $ 50/ barrel. The oil price is expected to grow at 2% per year thereafter. If the discounting rate is 10%, would you undertake the project. What other non-financial considerations you would take into effect when you make this decision.
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