What is the project net present value

Assignment Help Financial Management

Reference no: EM132003312

Quantitative Problem

Florida Seaside Oil Exploration Company is deciding whether to drill for oil off the northeast coast of Florida. The company estimates that the project would cost $4.62 million today. The firm estimates that once drilled, the oil will generate positive cash flows of $2.31 million a year at the end of each of the next four years. While the company is fairly confident about its cash flow forecast, it recognizes that if it waits two years, it would have more information about the local geology as well as the price of oil. Florida Seaside estimates that if it waits two years, the project would cost $4.92 million. Moreover, if it waits two years, there is a 65% chance that the cash flows would be $2.461 million a year for four years, and there is a 35% chance that the cash flows will be $1.168 million a year for four years. Assume that all cash flows are discounted at a 12% WACC.

If the company chooses to drill today, what is the project’s net present value? Round your answer to five decimal places.

$ million

Reference no: EM132003312

Questions Cloud

What is the project net present value in today dollars : What is the project’s net present value in today’s dollars, if the firm waits two years before deciding whether to drill?

Considering two injection molding processes : A plastics company is considering two (mutually exclusive) injection molding processes.

What is value of abandonment option : Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. What is the value of the abandonment option (in millions)?

Shares of common stock outstanding : If Sims has 35 million shares of common stock outstanding, what is the stock's value per share?

What is the project net present value : If the company chooses to drill today, what is the project’s net present value?

If two loans have same annual percentage rates : If two loans have same annual percentage rates then:

What is the interest rate and what is the volatility : Compute the expectation and the variance of W1/2 + W1. What is the interest rate? What is the volatility?

What is the value of this preferred stock : If your required rate of return is 8.25%, what is the value of this preferred stock?

Planning to make annual deposits : You are planning to make annual deposits of $6,570 into a retirement account that pays 8 percent interest compounded monthly.

User Account

All Pages