Give typing answer with explanation and conclusion  Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost $830 million to buy an oil rig. Drilling would start immediately. The company has a cost of capital of 11%.   There is a 50% probability that the new well will be succcessful, in which case the free cash flow from the well will be $200 million per year for 20 years. Otherwise, it will only generate $40 milion per year for 10 years.   What is the NPV of the project (in $ million)?

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
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Give typing answer with explanation and conclusion 

Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost $830 million to buy an oil rig. Drilling would start immediately. The company has a cost of capital of 11%.

 

There is a 50% probability that the new well will be succcessful, in which case the free cash flow from the well will be $200 million per year for 20 years. Otherwise, it will only generate $40 milion per year for 10 years.

 

What is the NPV of the project (in $ million)?

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