Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.81 million barrels per year in 2018, but production is declining at 8% per year for the foreseeable future. Costs of production, transportation, and administration add up to $25.10 per barrel The average oil price was $65.10 per barrel in 2018. PP has 7.1 million shares outstanding. The cost of capital is 10%. All of PP's net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $25.10. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.10 per barrel in 2019, $55.10 per barrel in 2020, and $50.10 per barrel in 2021. After 2021, assume a long-term trend of oil-price increases at 6% per year. What is the ending 2018 value of one PP share? (Do not ound intermediate calculations. Round your answer to 2 decimal places.) Share value 2016 -1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.81 million barrels per year in 2018, but production is declining at 8% per year for the foreseeable future. Costs of production, transportation, and administration add up to $25.10 per barrel The average oil price was $65.10 per barrel in 2018. PP has 7.1 million shares outstanding. The cost of capital is 10%. All of PP's net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $25.10. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.10 per barrel in 2019, $55.10 per barrel in 2020, and $50.10 per barrel in 2021. After 2021, assume a long-term trend of oil-price increases at 6% per year. What is the ending 2018 value of one PP share? (Do not ound intermediate calculations. Round your answer to 2 decimal places.) Share value 2016 -1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.81 million barrels per year in 2018, but production is
declining at 8% per year for the foreseeable future. Costs of production, transportation, and administration add up to $25.10 per barrel.
The average oil price was $65.10 per barrel in 2018.
PP has 7.1 million shares outstanding. The cost of capital is 10%. All of PP's net income is distributed as dividends. For simplicity,
assume that the company will stay in business forever and that costs per barrel are constant at $25.10. Also, ignore taxes.
a. Assume that oil prices are expected to fall to $60.10 per barrel in 2019, $55.10 per barrel in 2020, and $50.10 per barrel in 2021.
After 2021, assume a long-term trend of oil-price increases at 6% per year. What is the ending 2018 value of one PP share? (Do not
round intermediate calculations. Round your answer to 2 decimal places.)
Share value 2016 L
b-1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
EPS/P ratio
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