7-25 different methods of investment appraisal: One of the studies on oil exploration, which was submitted to the North Oil Company, showed the availability of large quantities of crude oil in one of the neighboring areas of Tamim Governorate. After studying the subject, it became clear that starting to extract oil from wells requires specialized equipment. Where the cost of the required excavator was estimated at (40) million $ Dollars , to be paid in cash upon starting work. The annual production volume of the oil well has been estimated at (1) million barrels, with its production process expected to continue for a period of (5) years to come. You have the following additional data: The selling price of one barrel 25 $ Dollars The variable cost per barrel 5 $ Dollars The total annual fixed costs of cash 2 million $ Dollars The estimated useful life of the driller (5) years and the expected value of its Salvage at the end of its useful life is zero. The company uses the straight-line method to calculate depreciation. Required: Investment evaluation according to the following methods: 2. The rate of accounting return on investment. 3. The accounting rate of return on the average investment.
7-25 different methods of investment appraisal: One of the studies on oil exploration, which was submitted to the North Oil Company, showed the availability of large quantities of crude oil in one of the neighboring areas of Tamim Governorate. After studying the subject, it became clear that starting to extract oil from wells requires specialized equipment. Where the cost of the required excavator was estimated at (40) million $ Dollars , to be paid in cash upon starting work. The annual production volume of the oil well has been estimated at (1) million barrels, with its production process expected to continue for a period of (5) years to come. You have the following additional data: The selling price of one barrel 25 $ Dollars The variable cost per barrel 5 $ Dollars The total annual fixed costs of cash 2 million $ Dollars The estimated useful life of the driller (5) years and the expected value of its Salvage at the end of its useful life is zero. The company uses the straight-line method to calculate depreciation. Required: Investment evaluation according to the following methods: 2. The rate of accounting return on investment. 3. The accounting rate of return on the average investment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:7-25 different methods of investment appraisal: One of the studies on oil
exploration, which was submitted to the North Oil Company, showed the
availability of large quantities of crude oil in one of the neighboring areas of
Tamim Governorate. After studying the subject, it became clear that starting to
extract oil from wells requires specialized equipment. Where the cost of the
required excavator was estimated at (40) million $ Dollars, to be paid in cash
upon starting work. The annual production volume of the oil well has been
estimated at (1) million barrels, with its production process expected to continue
for a period of (5) years to come. You have the following additional data:
The selling price of one barrel
25 $ Dollars
The variable cost per barrel
5 $ Dollars
The total annual fixed costs of cash
2 million $ Dollars
The estimated useful life of the driller (5) years and the expected value of its
Salvage at the end of its useful life is zero. The company uses the straight-line
method to calculate depreciation.
Required: Investment evaluation according to the following methods:
2. The rate of accounting return on investment.
3. The accounting rate of return on the average investment.
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