Improved methods of oil and gas recovery, including fracking, have renewed interest in mineral royalties that many thought were worthless. An investor pays $135,000 to a landowner for the first 3 years of royalties after production begins. The investor has a goal to earn an 18% per year rate of return over those 3 years. At the end years 1 and 2, the royalties paid are $70,000 and $50,000, respectively. What royalty must be earned in the 3rd year to achieve the investor's goal? 2$ Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. The tolerance is ±1.

Improved methods of oil and gas recovery, including fracking, have renewed interest in mineral royalties that many thought were worthless. An investor pays $135,000 to a landowner for the first 3 years of royalties after production begins. The investor has a goal to earn an 18% per year rate of return over those 3 years. At the end years 1 and 2, the royalties paid are $70,000 and $50,000, respectively. What royalty must be earned in the 3rd year to achieve the investor's goal? 2$ Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. The tolerance is ±1.

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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2. Suppose that you are considering speculating on some vacant land located on Bali Hai, an island in the South Pacific. You could acquire the land today for $850,000. You plan on holding it for fifteen years and then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be $35,000, paid at the end of the first year. These costs will increase annually at a 2.5% rate until you sell the land at the end of the fifteenth year. If you require an annual rate of return of 20%, what is the minimum amount that you have to net (after commissions, transfer taxes, fees, etc.) on the sale of this land at the end of the final year to earn your required rate of return? (Ignore income taxes)
1. Batinah Water Desalination project is a 15 year project. The project manager estimated that net initial investment expend in year zero is 100 million rials. The investment will be depreciated on a straight line basis to a 10 million book value by enc the project. During the operating phase revenue per year is 35 million and expense per year is estimated to be 20 million ria per year for 15 years. In year 15 net salvage value is estimated to be 15 million. WACC is estimated to be 10%. Tax Rate 209 1. Calculațe annual depreciation expenses 2. Calculate cash flow after tax CFAT in year 5 3. Calculate net present value. 4. Is it a good project Only final answers are required
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
3. Power Coal Mine Bhd is considering a new mining pit to increase its productionoutput. The company will have to pay $25 million for the rights to mine on thegovernment land. The infrastructure development costs will amount to another $12million. It is anticipated that the mine should generate annual net revenue of $10million for 15 years. When the mine is closed at the end of the fifteenth year, $10million will be spent for reclamation work. The company’s MARR is 10%per year.a.Draw a cash flow diagram for the above proposal.b. Compute the equivalent present worth (PW) of the proposal.c. Determine the minimum annual net revenue required for the proposal tobreakeven. Assume that costs of rights to mine, development, andreclamation remain the same.
An industrial laser can be purchased and installed for $90,000$. Assume that the GDS recovery rate is given for the 7-year period. We expect that the laser stays in service for eight years, and we gain $10,000$ from the disposal of it at the end of year eight. The $11,038$ net annual value that can be attributed to this laser is constant over all the eight years. Assume that the effective income tax rate is $0.25$ and the after-tax MARR equals $15%$ per year. What is the ATCF at the end of year six? Consider the depreciation deduction based on the 7-year period GDS recovery rate.
Answer ASAP correctly with proper explanation Samuel has just acquired a copper mine. The mine will produce $10,000 worth of ore after one year of operation. However, as the ore closest to the surface is removed, it will become more difficult to extract the ore. Therefore, the value of the ore that the mine produces will decline at a rate of 8% per year forever. If the appropriate interest rate is 6%, what is the present value of this mining operation’s future cashflows today? Show your work. Draw a timeline
8) The Shell Corp. owns a piece of petroleum drilling equipment that costs &100,000 and will be depreciated by Straight-line depreciation with B=$100,000, N=5 years, S=$0. There is a combined 40% tax rate. Shell will lease the equipment to others each year and receive $50,000 per year. At the end of 3 years, the firm will sell the equipment for $20,000. If the firm requires a 10% after-tax rate of return, what is the PW of the investment?
If the depreciation tax shield is 40,000 due to tax rate declaration of 20%, what is the price of the machine if it has an expected life of 20 years and the money is worth 13% compounded annually? 1. Depreciation: (4 decimal places only) 2. Price: (3 decimal places)
Parkville Mining is considering opening a new self sustaining gold mine at a cost today of $1,000,000. Beginning one year from today, this mine will produce $100,000 worth of gold every year for 10 years. After that, the value of gold produced will be $50,000 forever. If Parkville Mining 's appropriate interest rate is 8%, then the NPV of this gold mine is closest to: Group of answer choices $2,592,016 None of these alternatives $921,008 -$39,496 $1,296,008
A small research device can be purchased for $10,000 and depreciated by 5-year MACRS depreciation. The net benefits from the device, before deducting depreciation, are $2500 at the end of the first year and increasing $1250 per year after that, until the device is hauled to the junkyard at the end of 10 years. During the 10-year period there will be an inflation rate f of 7%. This profitable corporation has a 28% combined federal and state income tax rate. If it requires a real 15% after-tax rate of return on its investment, should the device be purchased?
2. Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $520,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $400,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $245,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 23 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
What is the expected after - tax cash flow from selling a piece of equipment if Probst purchases the equipment today for $548, 860.00, the tax rate is 39.9 percent, the equipment will be sold in 3 years for $98, 800.00, and the equipment will be depreciated to $72, 600.00 over 12 years using straight - line depreciation? $106, 885.74 (plus or minus $10) $262, 538.29 (plus or minus $10) - $72, 688.20 (plus or minus $10) $230,867.00 (plus or minus $10) None of the above is within $10 of the correct answer

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