Permian Partners (PP) produces from aging oil flelds in west Texas. Production is 1.86 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 $25.60 per barrel. The average oil price was $65.60 per barrel in 2018. PP has 76 milion 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 $25.60. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.60 per barrel in 2019, $55.60 per barrel in 2020, and $50.60 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 b-1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.) EPSP ratio b-2. Is it equal to the 10% cost of capital? O Yes

Permian Partners (PP) produces from aging oil flelds in west Texas. Production is 1.86 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 $25.60 per barrel. The average oil price was $65.60 per barrel in 2018. PP has 76 milion 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 $25.60. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.60 per barrel in 2019, $55.60 per barrel in 2020, and $50.60 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 b-1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.) EPSP ratio b-2. Is it equal to the 10% cost of capital? O Yes

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

please answer part c and d. Please make sure your answer is correct.
21 Fixed costs are irrelevant in decisions about whether a product should be retained or be dropped. True False 22 The required rate of return is the maximum rate of return that an investment project must viald to be acceptable. True False 23 Variable manufacturing costs are always relevant costs in short-term decisions. Immersive Reader True False
a) Calculate the discounted payback period for the project. b) Calculate the Net Present Value of the project. c) Mr. Mokhodu, the recently hired manager for this potential project is not convinced that using the IRR is sufficient to assess the project’s viability. Calculate the Modified Internal Rate of Return (MIRR) that should be used.
XY Inc. makes luxury hampers for sale in a first class department stores. The following financial information is available: whole sale price $ 80/ hamper labor and material $ 15/ hamper fixed cost $ 80,000 per year bought in components $ 25 per hamper Current output and sales are set at 30,000 hampers per year, though the firm has a capacity to produce 50,000 hampers per year. Using this information, the break even quantity of XY Inc is Blank 1 hampers. Blank 1 Add your answer
Calculation question: Suppose the following data accurately estimates the costs and benefits you outlined in #1. Calculate NPV assuming a discount rate of 4%. Should ISU invest in this project? Year Costs Benefits 0 1000 400 1 200 500 2 200 500 3 200 500
The manufacturer of smart printers is trying to decide what price to set for its product. The demand and cost function are assumed to be as follows: P = 80 -2Q TC= 160 +50Q-1.5Q ² What price should the company charge if it wants to maximize its profit in the short run? What is the optimal quantity for the printer following this optimal price?
Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer…
The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order $510 Relevant carrying costs per year for each product: Required annual return on investment 15% Required other costs per year $7 Annual demand is 30,000 products per year. The purchase price per product is $50. What is the annual relevant carrying costs?
link co just paid a dividend of $1.00 per share. Analysts expect its dividend to grow at 20% per year for the next two years and then 3% per year thereafter. If the required rate of return in the stock is 7%, calculate the current value of the stock. $32.49 $34.77 $35.82 $36.00 $37.20
The common stock of Eddie's Engines, Inc. sells for $15.75 a share. The stock is expected to pay $075 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 49% annually and expects to continue doing so. What is the market rate of return on this stock?
Compute the (i) net present value and (ii) internal rate of return of the following Q2. capital budgeting projects. The firm's required rate of return is 15 percent. Based on the NPV which project should be ассеpted. [8] Projects Year X Y 50,000 45,000 1 10,000 12,000 2 30,000 10,000 3 25,000 14,000
Question(4): A power plant is being considered in the dead sea location. For an initial investment of $130 million, annual net revenues are estimated to be $15 million in years 1-5 and $20 million in years 6-20. Assume no residual market value for the plant. a. What is the simple payback period for the plant?