The purchase of a jack up oil rig capable of standing in

Assignment Help Finance Basics

Reference no: EM13621620

The purchase of a jack up oil rig capable of standing in 325 ft of water costing $29,500,000. A significant relocation costs of the rig from costa rica estimated at $2,000,000. Equipment necessary to bring the rig to full operational status will be $2,500,000. Tugs, helicopter for JW's (the name of the company) use, mooring facilities, enviornmental equipment, and other contingencies unknown at the present time are estimated to be $1,000,000. All of these assets will be fully depreciated on the straight line basis over the project life. however, JW anticipates that he will be able to sell the rig for $7,500,000 in year 10. there will be a cash flow impact of this sale in year 10 and taxes associated with this sale. It is estimated that this rig will produce 1,000 barrels of oil/day and be in operation 325 days per year for the duration of the project life. There is a fixed sale price/barrel for the 10 years at $95 per barrel. There is an estimate of the projects variable costs at 35% of annual gross revenues. Fixed costs will be $7,500,000 per year. The corporate tax rate for the federal government and state is estimated to be 35%.

Questions:

1. What are the total investment costs in year 0, which will be capitalized and fully depreciated over the 10 year drilling period?

2. What are the annual cash flows associated with this ambitious venture for years 1-10?

3. What is the projects approximate Payback?

4. What is the Internal rate of return of the project?

5. What is the Net present Value of the Project?

Reference no: EM13621620

Questions Cloud

Neglecting air resistance what is the force of friction : consider an object which is rolling without slipping at constant speed on a level floor.a neglecting air resistance

To determine the efficiency of the current ticket operation : mike dreskin manages a large los angeles movie theater complex called cinema l ll lll lv. each of the four auditoriums

A pulley with a rotational inertia of 46 times 10-3 kg m2 : a pulley with a rotational inertia of 4.6 times 10-3 kg m2 about its axle and a radius of 7.0 cm is acted on by a force

Determine the dimentionless parameters that characterize : determine the dimentionless parameters that characterize the average velocity of the flow in a smooth pipeline if the

The purchase of a jack up oil rig capable of standing in : the purchase of a jack up oil rig capable of standing in 325 ft of water costing 29500000. a significant relocation

A precision instrument is guaranteed to read accurately to : a precision instrument is guaranteed to read accurately to within 2 units. a sample of four instrument readings on the

The rotational inertia of a uniform rod of length l and : the rotational inertia of a uniform rod of length l and mass m about its center is ml212. what is the rotational

A project was planned using pert with three times estimates : a project was planned using pert with three times estimates. the expected completion time of the project was determined

The model pump has am impeller diameter of 10 cm and a : a 15 scale model of centrifugal water pump was tested. the model pump has am impeller diameter of 10 cm and a rotation

User Account

All Pages