Permian partners produce from aging oil fields in west texas

Assignment Help Financial Management

Reference no: EM131606117

Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.97 million barrels per year in 2016, but production is declining at 9% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.70 per barrel. The average oil price was $66.70 per barrel in 2016.

PP has 8.7 million shares outstanding. The cost of capital is 11%. All of PP’s net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $26.70. Also, ignore taxes.

a. Assume that oil prices are expected to fall to $61.70 per barrel in 2017, $56.70 per barrel in 2018, and $51.70 per barrel in 2019. After 2019, assume a long-term trend of oil-price increases at 7% per year. What is the ending 2016 value of one PP share?

Share Value=

b-1. What is PP’s EPS/P ratio?

b-2. Is it equal to the 11% cost of capital?

Yes or no

Reference no: EM131606117

Questions Cloud

Expected interest rate-yield on seven-year treasury note : The real risk-free rate is 2.9%. Inflation is expected to be 3% this year, 3.65% next year, and 2.2% thereafter. What is the yield on a 7-year Treasury note?

Find an appropriate discount rate : Find an appropriate discount rate. Compute NPV. Does this company accept this project?

Find the monthly compound interest rate : Find the monthly compound interest rate.

Determine nominal interest rate on financial security : What are the six factors that determine nominal interest rate on a financial security?

Permian partners produce from aging oil fields in west texas : Permian Partners (PP) produces from aging oil fields in west Texas. Costs of production, transportation, and administration add up to $26.70 per barrel.

Lease versus purchase decision : Compute the aftertax cost of the leases for the four years. Compute the aftertax cost of the borrow-purchase alternative.

Expenses associated with this conference are on target : Assume that only one confrence will be attended and the estimated expenses associated with this conference are on target.

What will be loan loan-to-value ratio : What will be loan’s loan-to-value ratio (do not deduct points from the loan amount)? what will be your debt to income ratio?

How does exchange rate affect firms cash flows : How does exchange rate affect firms' cash flows and its impact on stock returns.

User Account

All Pages