The Drilling Corp. owns drilling rights on a tract of land on which crude oil has been discovered. The Drilling Corp. projects that the tract will allow drilling and recovery on crude for the next 4 years. They anticipate the following cost associated with the project including the cost of restoring the land to a park-like atmosphere. Below are projected data associated with this project: Annual cash receipts of $50,000 Annual cash expenses of $300,000 Equipment requirements of $500,000. Some of this equipment will be sold for $20,000 at the conclusion of the lease. The remainder of the equipment will have no salvage value at the end of the project and will be abandoned, adding to the rustic park-like atmosphere of the property. Inventory and supplies necessary to begin and maintain the project are $40,000 The cost of restoring the land to a pristine park-like setting and converting the drilling equipment into monkey bars is projected to be $100,000. ( Assume this is not a capital expenditure) BBDC has a cost of capital of 15%. Required: Evaluate this project for The Drilling Corp.
The Drilling Corp. owns drilling rights on a tract of land on which crude oil has been discovered. The Drilling Corp. projects that the tract will allow drilling and recovery on crude for the next 4 years. They anticipate the following cost associated with the project including the cost of restoring the land to a park-like atmosphere. Below are projected data associated with this project: Annual cash receipts of $50,000 Annual cash expenses of $300,000 Equipment requirements of $500,000. Some of this equipment will be sold for $20,000 at the conclusion of the lease. The remainder of the equipment will have no salvage value at the end of the project and will be abandoned, adding to the rustic park-like atmosphere of the property. Inventory and supplies necessary to begin and maintain the project are $40,000 The cost of restoring the land to a pristine park-like setting and converting the drilling equipment into monkey bars is projected to be $100,000. ( Assume this is not a capital expenditure) BBDC has a cost of capital of 15%. Required: Evaluate this project for The Drilling Corp.
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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The Drilling Corp. owns drilling rights on a tract of land on which crude oil has been discovered. The Drilling Corp. projects that the tract will allow drilling and recovery on crude for the next 4 years. They anticipate the following cost associated with the project including the cost of restoring the land to a park-like atmosphere. Below are projected data associated with this project:
- Annual cash receipts of $50,000
- Annual cash expenses of $300,000
- Equipment requirements of $500,000. Some of this equipment will be sold for $20,000 at the conclusion of the lease. The remainder of the equipment will have no salvage value at the end of the project and will be abandoned, adding to the rustic park-like atmosphere of the property.
- Inventory and supplies necessary to begin and maintain the project are $40,000
- The cost of restoring the land to a pristine park-like setting and converting the drilling equipment into monkey bars is projected to be $100,000. ( Assume this is not a capital expenditure)
- BBDC has a cost of capital of 15%.
Required:
- Evaluate this project for The Drilling Corp.
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