15.Tyler Oil Corporation estimates the following costs to acquire, drill, and completea well on Lease A:Drilling and completion costsAcquisition costsSelling price of oil ($/bbl).Lifting costs ($/bbl).State severance tax rate$ 80,000600,0001,000255%20%Royalty interestREQUIRED: Would the investment be profitable if proved reserves are:a. 12,000 bbl?b. 18,000 bbl?c. 24,000 bbl?

Here is what we are given:Acquisition costs: $80,000Selling price of oil: $1,000 per barrelLifting…

Answered: 15. Tyler Oil Corporation estimates the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An oil and gas company considers five sizes of pipe for a new pipeline. The costs for each size are provided below. Cash flow item Initial investment ($) Annual operating & maintenance cost (AOC) ($) Salvage value ($) Annual income ($) Lifetime, years 140 a) Payback period b) Rate of return (ROR) 3200 600 1000 1000 10 160 4000 950 1250 1500 10 Pipe size, mm c) Discounted profit to investment ratio (DPI) d) Annual worth criterion (AW) 200 5500 1000 1450 2000 10 240 6000 1150 700 2250 20 300 7500 1200 700 3250 If all pipes will last over the provided lifetimes and the company's minimum attractive rate of return (MARR) is 10%, which size of pipe would you choose according to the: 20
Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The estimated cash flows for each alternative are as follows: Alternative A Alternative B Capital Investment Annual Expenses $20,000 $38,000 5,500 4,000 Market Value at end of useful 1,000 4,200 life Useful life 5 years 10 years Which alternative is preferred, based on the repeatability assumption? Use AW Method. a. b. Assume the study period is shortened to five years. The market value of Alternative B after five years is estimated to be $15,000. Which alternative would you recommend? Use AW method.
Q1) One of the petroleum company is to develop their investment in on existing wells, they have 2 projects are available to investment as part of situation existing petroleum wells the data of each project as in the table: Project A:r=8% cash flow (CF) Project B: r=8% cash flow (CF) year -2120 -2500 1 600 900 2 820 1000 980 1150 The main Requirements : A) Accounting of NPV for the specific mentioned r for each projects as mentioned above? B) Find out IRR results fom range of its percentages from (5%-20%)? Find the final results for at least three different types of percentage for each project? C) based on your calculations which one of your IRR (%) which is making NPV is very close of Zero. D) Drawing all the above results between IRR and NPVS for both projects? E) Evaluating which one of the project within more benefits of investment according to all calculation procedure?
Merrill Corp. has the following information available about a potential capital investment: $1,100,000 Initial investment Annual net income Expected life $ 110,000 8 years Salvage value $ 120,000 Merrill's cost of capital 79 Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent.
Calculate the expected accounting rate of return on average investment for a proposed investment of $9.000,000 in a fued asset, using straight line depreciation with a useful life of 20 years, $600,000 residual value, and is expected to increase the company's total net income (after depreciation and taxes) over the investment's 20-year useful life by $12,000,00. O 12.5% O 250.0% O 18.0% O 14.3% O 6.7%
Mf2. Sunshine Oil & Gas is considering an investment in Perfect Lease. Given the following information, calculate the payback period (in months). Should Sunshine invest in Perfect Lease if management requires a payback period of less than 36 months? Acquisition cost of Perfect Lease $60,000 Drilling cost of one well $450,000 Estimated completion cost $600,000 Estimated selling price per bbl $55 Estimated lifting cost per bbl $20 State severance tax 6% Royalty interest 10% Estimated monthly production 750 bbls per month Payback period (in months, rounded to two decimal places): Based on payback, should Sunshine invest in Perfect Lease? (yes or no):
Required Information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $3,400 for three years. The investment costs $54,900 and has an estimated $10,200 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign.) Cash Flow Annual cash flow Residual value Select Chart Net present value Amount x PV Factor = Present Value
A potential project involves an initial investment in machinery of RO.1,000,000 and has the following cash inflows:Year 1 – RO.250,000Year 2 – RO.350,000Year 3 – RO.200,000Year 4 – RO.400,000At the end of year 4, the machinery will be sold for RO.600,000.Calculate the accounting rate of return based on average investment.NOTE (DEDUCT THE DEPRECIATION TO ARRIVE AT THE CORRECT AVERAGE PROFIT) a. None of the options b. 35% c. 20% d. 25% Clear my choice
A mining project requires the purchase of new drilling equipment at a cost of $69750. A further $36000 will be spent on transport, installation and initial maintenance of the equipment, at the very beginning of the project. Of this amount, 35% constitutes maintenance costs and will be written off in Year 1, and the remainder will be capitalised. What is the value of the equipment for depreciation purposes? Question 4Answer a. $82350 b. $93150 c. $105750 d. $69750
You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000
A petroleum project involves production of crude oil from a 5,000,000 barrel reserve. Time zero mineral rights acquisition cost (lease bonus) of $2,000,000 is the basis for cost depletion. Intangible drilling expenses of $1,500,000 will be incurred in time zero. Tangible producing equipment costing $3,000,000 at time zero will go into service in year one and depreciated using double declining balance (on the 7-year depreciation basis considering first full year of use) Production is estimated to be 350,000 barrels per year. Well-head crude oil value before transportation cost is estimated to be $42.00 per barrel in year one, $43.00 per barrel in year two, and $44.00 per barrel in year three. Royalties are 10.0% of revenues (well-head value) each year. Operating costs are expected to be $3,000,000 in year one. $3,300,000 in year two, and $3,600,000 in year three. The allowable percentage depletion is 15.0%. The effective income tax rate is 40.0%. The investor has other taxable income…
Question(3): A power plant is being considered in the dead sea location. For an initial investment of $170 million, annual net revenues are estimated to be $15 million in years 1–5 and $20 million in years 6–20. Assume no residual market value for the plant. a. What is the simple payback period for the plant? b. What is the discounted payback period when the MARR is 4% c. Using an equivalency technique (FW, PW, or AW), MARR is 4P% per year, would you recommend investing in this project? per year?

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