A natural gas well is projected to produce $200000 in profit during its first year of operation and $10000less each subsequent year. If the well is expected to produce for a total of 10 years, and the effectiveannual interest rate is 5%, which of the following most closely represents the present worth of the well?

The present worth of the natural gas well can be calculated using the geometric series formula,…

Answered: A natural gas well is projected to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 1P

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Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its first production year. However, its subsequent production (yield) is expected to decrease by 9% over the previous year's production. The oil well has a proven reserve of 10,500,000 barrels.(a) Suppose that the price of oil is expected to be $120 per barrel for the next six years. What would be the present worth of the anticipated revenue trim at an interest rate of 10% compounded annually over the next six years?(b) Suppose that the price of oil is expected to start at $120 per barrel during the first year, but to increase at the rate of 3% over the previous year's price. What would be the present worth of the anticipated revenue stream at an interest rate of 10% compounded annually over the next seven years?
A natural gas well is projected to produce $200,000 in profit during its first year of operation, $190,000 the second year, $180,000 the third year, and so on, continuing this pattern. If the well is expected to produce for a total of 10 years, and the effective annual interest rate is 8%, which of the following most closely represents the present worth of the well? a. $1,770,000. b. $1,508,000c. $1,253,000. d. $1,082,000.
A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project will be $238,900. The net after-tax salvage value is estimated at $67,000 and will be received during the last year of the project's life. What is the net present value of the project (rounded to the nearest dollar) if the required rate of return is 15.2 percent?
Net returns from an investment are estimated to be $13,000 per year for 12 years. The investment involves an immediate outlay of $50,000 and a further outlay of $30,000 after 6 years. The investments are estimated to have a residual value of $10,000 after 12 years. Find the net present value at 20%.
Consider a project with an initial investment (today, t = 0) of $200,975. This project will generate cash flows of $49,500 per year for the next 8 years, at which time (end of Year 8) the company will pay $50,000 to another for clean-up and disposal. What is the Profitability Index (PI) of the project if shareholders demand a 16.295% return? Answer with a number rounded to three decimal places, e.g., 4.0877% should be entered as 4.088.
A capital investment has an initial cost of $566,000. At the end of each of the next 9 years, it is expected to produce cash inflows of $143,000 and cash outflows of $53,000. After 9 years, it is expected to have a residual value of $17,000. Using a discount rate of 7%, what is this investment's net present value?.
An income-producing property is expected to yield NOI of $100,000 in each of the next five years, with cash flows being received at the end of each period. At the end of the fifth year the property will be sold; the owner wishes to use a going-out cap rate of 7.3% for this transaction. For a cost of capital of 9.5 % annually, what is the value of this property today? Your Answer:
The property is current selling for $400,000. You have forecasted, at the end of the fifth year we will assume the property will (or at least could) be sold for $500,000. If the required rate of return on projects of similar risk is 15%. ⦁ What is the net present value (NPV) of this investment project and should it be purchased? ⦁ What is the Internal Rate of Return offered by the project?
A project that will last for 7 years is expected to have equal annual cash flows of $103,000. If the required return is 8.7 percent, what maximum initial investment would make the project acceptable?
The company has a project with a 5-year life, an initial investment of $170,000, and is expected to yield annual cash flows of $57,500. Whathat is the present value index of the project if the required rate of return is set at 6%? Present value index = Total present value of net cash flows Initial investment Calculation Steps Note: Round total present value of net cash flows and initial investment to nearest dollar. Round present value index to two decimal places. Present value index = $fill in the blank = fill in the blank $fill in the blank
The development requires investments of $100,000 today, $300,000 in 1 year from today and $200,000 in 2 years from today. Net returns for the project are expected to be $90,000 at the end of year over the next 15 years. If the company requires a rate of return of 12% compounded annually-find the NPV of the project.
An engineering project has an investment amount of $127420 with an annual net profit of $53826 for 4 years. If the interest rate and average inflation rate are 15% and 6%, respectively, calculate the present worth of the entire period.

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