How much are you willing to pay for the field

Assignment Help Finance Basics
Reference no: EM133074938

You are considering buying a field that contains 393 barrels of oil that can be extracted. If you buy the field, you can extract the oil and sell it in one year from today; the cost of drilling and extracting the oil will be $16,899 when you do it in one year. Nothing happens after time 1. In other words, the only cash flow from owning the field occurs in one year from today and is given below:

Time 0 1

Cash flows -(Purchase price of field) If you drill: Proceeds from selling the 393 barrels of oil minus the $16,899 cost of extraction If you do not drill: $0

You expect the price of oil in one year to be $49.25 per barrel, and your discount rate is 19%.

Part A. How much are you willing to pay for the field? Assume that you are going to drill in one year regardless of the price of oil. That is, ignore real options

Reference no: EM133074938

Questions Cloud

Compare and analyze how well the company is doing : Compare and analyze how well the company is doing relative to the industry - issue and you must provide sound reasoning to support your views
Calculate the annual rate of return for the new machine : The current book value of the existing machine is $40,000. Teck uses straight-line depreciation. Calculate the annual rate of return for the new machine
Describe the evaluation screening process : What are the 2 main types of innovation? What are the ways to generate business ideas? Describe the evaluation screening process.
What is the effective annual rate : 1.Suppose your credit card issuer states that it charges a 11.25% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding.
How much are you willing to pay for the field : You are considering buying a field that contains 393 barrels of oil that can be extracted. If you buy the field, you can extract the oil and sell it in one year
Compute the npv of this project : Project Alpha offers the following net cash flows following an initial (year 0), certain outlay (NINV) of $70,000.
What is the price of the stock : a) What is the price of the stock if the firm does not undertake the new project?
Calculate the discounted payback period : The information Amazing has accumulated regarding the new machine? is: Cost of the machine $100,000. Calculate the Discounted payback period
Expected payoff to the debt under limited liability : The CEO is considering using the $5 plus the $95 to invest in a project that costs $100 and that has a 50/50 chance of paying $85 or $115.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd