A petroleum company is planning to sell a number of existing oil wells. The wellsare expected to produce 100,000 barrels of oil per year for 14 more years. If theselling price per barrel of oil is currently 35, how much would you be will to payfor the wells if the price of oil is expected to decrease by $2 per barrel every 3years, with the first decrease to occur immediately at the end of year 2? Assumethat the interest rate is 10 % per year and that oil sales are made at the end ofeach year.

The time value of money is the idea that the value of money received today will be more worthy than…

Answered: A petroleum company is planning to sell…

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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Similar questions

you work for a pharmaceutical comapny that developed a new drug. The patent on the drug will last 17 years . You expect the profits to be 1 million in its first year and that the amount will grow 2% for the next 17 years. the present value is if the interest rate is 11%
You are valuing an investment that will pay you $26,000 per year for the first 4 years, $36,000 per year the next 11 years, $49,000 per year the next 17 years, and $45,000 per year the following 10 years (all payments are at the end of each year). If the appropriate annual discount rate is 6.00%, what is the value of the investment to you today?
Company ABC invests in a long-term project that will start generating cash flows 10 years from now (and will then continue generating cash flows forever). The first cash flow is going to be equal to $22 million. Cash flows will then grow 2% per year forever. If the project costs $460 million today, is it a good investment if interest rates are (and are going to be forever) equal to 5%?
You are looking at an investment that will make annual payments of $28,000, $32,000, $66,000, and $99,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 3.6 percent, what is the value of the investment offer today?
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,310,000. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 31 percent. You have approached a buyer and would like the option to sell the land in 12 months for $1,460,000. The risk- free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of put option $ 208,531.70 M
I need a detailed explanation and assistance to solve this problem: An investment offers $6,800 per year for 20 years, with the first payment occuring one year from now. a) If the required return is 7%, what is the present value of the investment? b) at 7% return, what would the value be today, if the payments occured for 45 years? c) What would the present value be, if the payments occured for 70 years? d) What would the present value be, if the payments occured forever?
You are considering investing $15,000 in a project today. This project will generate $6,500 per year for five years. The first cash flow comes at the end of Year 3. What is the net present value of this project if the required rate of return is 10 percent?
Standby power for a manufacturing firm is currently produced using diesel-powered generators. In three years the company can switch to natural gas-powered generators. The company believes it can save $29,02 per year through year 7. If the company uses an interest rate of 5%, what is the present value at time 0 of the projected savings that will occur in years 3 through 7?
An investment promises to pay $7,000 at the end of each year for the next six years and $3,000 at the end of each year for years 7 through 10. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 15 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$ Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 15 percent required rate of return?$
Your start-up company's net profit next year will be $50,000, and you then expect that to increase by $5,000 for each of the following 4 years. You now are asking the bank for a $25,000 loan to buy some new equipment, and the loan officer asks you for the current equivalent annual worth of your net profit over your projection period -- WITHOUT the new equipment. Your interest rate is 3% per year. What is the amount of that equivalent annual worth? $61,714 $57,316 $84,754 $59,705 $82,316
An investment promises to pay you $40, 000 per year starting five years from today and continuing until the end of year 12. How much would you pay for that investment today assuming a discount rate of 10% ?
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