ITLOS Petroleum is considering the commercial phase of an oil operation in the Tano Basin of Ghana. ITLOS has incurred US$12 million in prospecting cost. the commercial phase requires a capital investment of US$5 million immediately and US$35 million in the first year. Recent assessment reports suggest that the basin has oil deposits in commercial quantities, but actual reverses could vary from current estimates. Possible reserve outcomes and related cash flows follow: scenario reserve 1 2 3 4 5 35 30 25 23 20 year2 year3 year4 year5 year6 NPV 24 25 23 22 31.40 16 17.23 15% 21 25% 18 30% 15 20% 13 10% 8 17 13 11 10 21 15 13 11 (a)compute the NPV of the project under the scenario 5. (b)compute the expected net present value of the project. should the project be implemented? (c) what is the probability that the project will be viable? what is the probability that the project would result in loss 18 11 10 8 8 6 5 1.96 (3.37) not completed

ITLOS Petroleum is considering the commercial phase of an oil operation in the Tano Basin of Ghana. ITLOS has incurred US$12 million in prospecting cost. the commercial phase requires a capital investment of US$5 million immediately and US$35 million in the first year. Recent assessment reports suggest that the basin has oil deposits in commercial quantities, but actual reverses could vary from current estimates. Possible reserve outcomes and related cash flows follow: scenario reserve 1 2 3 4 5 35 30 25 23 20 year2 year3 year4 year5 year6 NPV 24 25 23 22 31.40 16 17.23 15% 21 25% 18 30% 15 20% 13 10% 8 17 13 11 10 21 15 13 11 (a)compute the NPV of the project under the scenario 5. (b)compute the expected net present value of the project. should the project be implemented? (c) what is the probability that the project will be viable? what is the probability that the project would result in loss 18 11 10 8 8 6 5 1.96 (3.37) not completed

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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