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…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 14E

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4. 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 isthe 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 be 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 $42.0o per barrel in year one, $43.00o per barrel in year two, and $44.0o 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…
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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
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
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9
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Vijay

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