estimated reserves amount to 11,000,000 barrels and the estimated present value of the development cost for each barrel is $12. The current price of oil is $18.8 per barrel and the average production cost is estimated to be $5 per barrel. The company has the rights to these reserves for the next fifteen years and the 15- year bond rate is 6%. The company also proposes to extract 3% of its reserves each year to meet cashflow needs. The annualized standard deviation in the price of the oil is 20%. What is the value of this oil company? The value is $ x. (Round your answer to full integer. Omit the '$' sign in your
estimated reserves amount to 11,000,000 barrels and the estimated present value of the development cost for each barrel is $12. The current price of oil is $18.8 per barrel and the average production cost is estimated to be $5 per barrel. The company has the rights to these reserves for the next fifteen years and the 15- year bond rate is 6%. The company also proposes to extract 3% of its reserves each year to meet cashflow needs. The annualized standard deviation in the price of the oil is 20%. What is the value of this oil company? The value is $ x. (Round your answer to full integer. Omit the '$' sign in your
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
Related questions
Question
Baghiben
Transcribed Image Text:You have been asked to analyze the value of an oil company with substantial oil reserves. The
estimated reserves amount to 11,000,000 barrels and the estimated present value of the
development cost for each barrel is $12. The current price of oil is $18.8 per barrel and the
average production cost is estimated to be $5 per barrel. The company has the rights to these
reserves for the next fifteen years and the 15-year bond rate is 6%. The company also
proposes to extract 3% of its reserves each year to meet cashflow needs. The annualized
standard deviation in the price of the oil is 20%. What is the value of this oil company?
The value is $
x. (Round your answer to full integer. Omit the '$' sign in your
response.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 1 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education