Risk for wildcat oil driller is project standing alone risk

Assignment Help Financial Management

Reference no: EM131606065

A wildcat oil driller has enough capital to invest in only one project, that is, to drill one well in an East Texas oil field. A major oil company is drilling 100 wells in the same field. The probability of successfully striking oil is 10% for any well drilled in this field. Which of the following statements is MOST correct concerning the risk involved in these capital budgeting projects? (Points : 2) The risk for the wildcat driller is the same as the risk for the major oil company since they are both drilling in the same oil field. The appropriate risk for the wildcat driller is systematic risk. The appropriate risk for the major oil company is contribution-to-firm risk, if all shareholders of the firm are well diversified. The best measure of risk for the wildcat oil driller is project standing alone risk.

Reference no: EM131606065

Questions Cloud

European exports to the united states are more competitive : European exports to the United States are more competitive.

Time value of money calculations in your daily life : This week’s discussion question relates to where you see time value of money calculations in your daily life.

Recapture of net working capital at the end of project : The recapture of net working capital at the end of a project will increase terminal year free cash flow.

One potential reason for share repurchase : One potential reason for a share repurchase is

Risk for wildcat oil driller is project standing alone risk : A wildcat oil driller has enough capital to invest in only one project, The best measure of risk for the wildcat oil driller is project standing alone risk.

National interest rates for securities of the same maturity : opposite in sign to the difference in the national interest rates for securities of the same maturity.

Payback period and discounted payback period : what is the project’s NPV? IRR? Payback period? Discounted payback period? Should the project be accepted?

You escrow the taxes and insurance : What is your Monthly PITI Payment if you escrow the taxes and insurance?

Mortgage payment for the mortgage for the first two years : what is the Monthly Mortgage Payment for the mortgage for the first two years of the 2-1 schedule?

User Account

All Pages