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?

Reviews

Write a Review

Financial Management Questions & Answers

  What rate of return is the buyer expecting to make

Joe Black just won a $550,000 lottery in Pennsylvania. Instead of receiving a lump sum, he found that he would receive $25,500 annually (end of year) for 20 years. Joe is 75 years old and wants his money now. He has been offered $140,827 to sell his ..

  The volatility or risk of this stock

The volatility or risk of this stock (sigma) is 20% and the risk free rate?is 10%. ?What is 'd1'??

  What is the current yield and what is the capital gains

A corporate bond currently sells for $834.72. This $1,000 par value, 20 year bond pays an annual coupon of 5%. SHOW ALL WORK using the TI BAII Plus Calculator for full credit. What is the yield to maturity (YTM)? What is the current yield? What is th..

  Change in sales is the only consequence of this? decision

If the change in sales is the only consequence of this? decision, what are its costs and? benefits? Is it a good? idea??

  Market interest rates on similar bonds

General mills have a $1000 par value, 12-year bond outstanding with an annual coupon rate of 3.60% per year, paid semi annually. Market interest rates on similar bonds are 12.70%. Calculate the bond's price today. Show work

  Straight-line depreciation to zero over six-year life

Which of the following securities is most liquid and has the least default risk? Consider a 6-year project with the following information: initial fixed asset investment = $400,000; straight-line depreciation to zero over the 6-year life;

  Consider a graph of the security market line

Consider a graph of the security market line. Assume the vertical intercept is 3%, beta is 1.2 and the expected return on the market is 10%. What is the risk free rate of return? Express your number as a percentage.

  Calculate the net yield the investor would earn

An investor pays income tax at 30% and is considering purchase of a 100, 11% bond which pays half-yearly interest, is redeemable at par in exactly 5 years and is quoted on the market at 102. calculate the net yield the investor would earn if the bond..

  What is the sharpe ratio of the tangency portfolio

What should be the risk-free rate if there is no arbitrage opportunity? What is the Sharpe ratio of the tangency portfolio?

  Determine shareholders expected return on equity

Determine the shareholders’ expected return on equity. How can the expected return on equity be reduced?

  Compare and contrast online brokerage to dips and drips

Search the Web for three companies (look for investor information) that offer DIPs or DRIPs and compare and contrast the requirements, including minimum investments, nature of the return, costs, and other features.

  Managing your individual retirement accounts.

You are managing your individual retirement accounts. Are you worried about losing money in your retirement accounts? What could you do to reduce risk or increase risk if you’re not worried about losing money? Explain.

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