450well A657Compressor fuel200Well BMeter1000()Well C3,700980Well DHeater Treater150ShutWell EINAllocate on lease fuel back to the well heads..Allocate gas sales back to the well heads.+++Page1> of 4Based on the volumetric allocation of natural gas, assume the following: Tyler Oil Company owns 100% of the workinginterest in the above lease. Alex Walker owns a 1/8 royalty interest in the lease. The sales price is $8.00/mmbtu andthe state severance tax is 8%. Based on gas analysis the heating content is 1.03 Btu.What is the value of gas sales?What is the amount of gross revenue Tyler Oil Company should record?What amount should Tyler Oil Company record for gross royalty and severance tax?Provide the revenue entry by Tyler Company if PURCHASER assumes the responsibility of distributing severancetaxes and royalty.Provide the revenue entry by Tyler Company if Tyler assumes the responsibility and receives 100% of theproceedsWhat amount of gross revenue, royalty, severance taxes and net revenue should Tyler Oil Company record foreach well (A-B-C-D-E)?MacBook AirC-ZOOM

Total gas production:Total gas production =450 + 200 + 1 , 000 + 3 , 700 + 150 = 5 , 500Total gas…

Answered: 450 well A 657 Compressor fuel 200 Well…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 19P

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15. Tyler Oil Corporation estimates the following costs to acquire, drill, and complete a well on Lease A: Drilling and completion costs Acquisition costs Selling price of oil ($/bbl). Lifting costs ($/bbl). State severance tax rate $ 80,000 600,000 1,000 25 5% 20% Royalty interest REQUIRED: Would the investment be profitable if proved reserves are: a. 12,000 bbl? b. 18,000 bbl? c. 24,000 bbl?
what is the 0.46 means? Why 15m need to times the 0.46? What is the answer means? What is the 552 means? Why it need to times the 6.9m with 8%?
4. NPV versus IRR Bruin, Inc., has identified the following two mutually exclusive projects: Year 0 1 2 3 4 Cash Flow(A) -$ 40,000 19,100 17,800 15,200 8,400 Cash Flow(B) -$ 40,000 6,300 14,200 17,900 30,300 a. What is the IRR for each of these projects? (5%) Using the IRR decision rule, which project should the company accept? (5%) b. If the required return is 10 percent, what is the NPV for each of these projects? (5%) Which project will the company choose if it applies the NPV decision rule? (5%)
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.
In this assignment you will need to perform an analysis on a hypothetical discovery based on the following information: Field Size 1.4 Tcf Production/Reserve Ratio 7% of the original field size starting producing year 3 Gas Price $3.5/Mcf CapEx $1/Mcf capitalized in 5 years, straight-line depreciation Operating Cost $0.8/Mcf Royalty 10% Government Take 40% Cost recovery limit 60% of gross revenue Discount Rate 10% Income Tax Rate 33% Allow cost recovery carry forward 1. Evaluate the discovery – you need to calculate the total worth, worth to the company, government take, value in terms of entitlement interest and working interest. 2. Evaluate the producing gas reserve – total worth, worth to the company, government take, value in terms of entitlement interest and working interest.
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…
Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $130,900. Project 2 requires an initial investment of $97,200. Assume the company requires a 10% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Years 1-7 Project 1 Net present value Years 1-5 Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.) Project 2 Present Value Net Cash Flows x of Annuity at 10% Present Value Net Cash Flows x of Annuity at 10% = = Project 1 $ 105,300 70, 200…
in X ngagenow.com/ilm/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress=false Calculator Print Item Lease or Sell Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) August 7 Lease Sell Differential Equipment Effects Equipment (Alternative 1) (Arnative 2) (Alternative 2) $ 320,000 Revenues $300,000 600,000 Costs Profit (Loss)…
Appendix One (Construct or lease)Objective: Should WLW lease or construct their own production facilityOption 1: ConstructCosts to incur:Buying land, construct building and getting ready for use$ 360,000Taxes, insurance, and repairs (per year) $ 34,000Intended years of use 20Projected market value in 20 years $ 1,600,000Maximum down payment WLW can make $ 500,000Remainder in four payments of; $ 160,000Revenue opportunityBuilding annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years $60,000Option 2: Lease Intended years of use 20First lease payment due now $ 90,000Rest of the lease payments (years 2-20) $ 90,000Operating costs to be paid by WLWRepairs (annual) $ 9,000Maintenance (annual) $ 26,000Initial one-time deposit, will be returned in year 20$ 40,000Required rate of return 15%Methodology:The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction.Based on the analysis, they will recommend the…
Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 28,500 −$ 28,500 1 13,900 4,050 2 11,800 9,550 3 8,950 14,700 4 4,850 16,300 a-1. What is the IRR for each of these projects? a-2. Using the IRR decision rule, which project should the company accept? multiple choice 1 Project A Project B a-3. Is this decision necessarily correct? multiple choice 2 Yes No b-1. If the required return is 11 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Which project will the company choose if it applies the NPV decision rule? multiple choice 3 Project A Project B c. At what discount rate would the company be indifferent between these two projects? (Do not round intermediate…
Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 66,000 −$ 66,000 1 42,000 28,400 2 36,000 32,400 3 24,000 38,000 4 15,200 24,400 a-1. What is the IRR for each of these projects? a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 12 percent. What is the NPV for each of these projects? b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? c-2. Over what range of discount rates would you choose Project B? d. At what discount rate would you be indifferent between these two projects?
The management of Yogi Woo Wholesalers are considering two mutually exclusive investmentprojects. The following data are available for each project:Project A Project B Disc Factor$ $Cost of plant and equipment 90 000 60 000Salvage value nil nilExpected cash flows:Year 1 55 000 27 500 0,909Year 2 12 500 30 750 0,826Year 3 52 500 34 750 0,751The estimated cost of capital is 10% per annum. The assets’ life is 3 years.4 | P a g eRequired: Calculate for each projecta. The Payback Period (5 marks)b. The Net Present Value (5 marks)c. Briefly describe the advantages and disadvantages of the following capital appraisaltechniques:i. Payback Periodii. Net Present Valueiii. Internal Rate of Returniv. Accounting rate of Return

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