Exercise : Calculate Cash FlowThe following offshore oil development project is being proposed. What would beyour approach to address the opportunity ?Production Data: First Oil beginning of Year 3Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Annual Oil Production51515102.51.00.5Technical CostsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Platform3030Facilities1530Tangible Drilling1015104Intangible Drilling203215Fixed Opex8141515151515Variable OpexUS$ 0.40/bbl producedOil Price forecast: US$ 20/bbl, expected to remain constant thereafterTerms and Conditions : Royalty 25%Tax rate 20%, Tax losses not allowedCapital Allowance - Straight line at 25% p.a.,Only start after First Oil production

For approaching this type of opportunity profit (before and after-tax) should be analyzed.

The following offshore oil development project is being proposed. What would be your approach to address the opportunity ? Production Data : First Oil beginning of Year 3 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Annual Oil Production 15 15 10 2.5 1.0 0.5 Technical Costs

The following offshore oil development project is being proposed. What would be your approach to address the opportunity ? Production Data : First Oil beginning of Year 3 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Annual Oil Production 15 15 10 2.5 1.0 0.5 Technical Costs

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Can I calculate the Rate of Return using the NPV/initial investment? Why or why not?

A: When an investment is made in a certain project, its future outcomes are measured based on the money…

Q: Central Plains Power Company is considering an investment in wind farm technology to reduce its use…

A: Net present value of the project = 6.81086 annuity factor * annual cost savings - Initial…

Q: A network company is planning to install a Fiber optic lines going to an island. What is the more…

A: EUAC is known as the Equivalent Uniform Annual Cost method. It alters the total cash flows and…

Q: Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand…

A: Market Value Added: It is possible to calculate market value added (MVA) by subtracting the market…

Q: Present using the rate of return method (ROR) with the formula. If the NPV is used to determine the…

A: Here, Net Cash Flow is 31250 Rate of Interest is 10% Initial Investment is 100000 NPV is 18462…

Q: A local real estate investor in Orlando is considering three alternative investments: a motel, a…

A: 1) Maximax criterion , is a decision making strategy where the best of the best possible outcomes is…

Q: The management of Nadia Investors has to make a choice between two projects: Project Intensive and…

A: Capital Budgeting is the technique for evaluating various projects in terms of profitability of the…

Q: Project B D E Initial Investment 3,300 -6,500 5,300 -7,000 -5,500 Annual Benefit 650 1,200 950 1,250…

A: The answer has been mentioned below.

Q: Assume that a loss in any year will result in a tax credit.

A: Net Present Value (NPV) is the difference between the present value of cash inflow and the present…

Q: A firm is looking to evaluate the income coming from a project. The project has a lowest possible…

A: Expected income The expected income is calculated as shown below. Expected income=First…

Q: Oman oil company is trying to evaluate a new project with the following cash flows. If the project…

A: Net Present Value (NPV)- It is the difference between the present value of cash inflows and the…

Q: Lehigh Products Company is considering the purchase of nen automated equipment. The project has an…

A: Standard deviation is a measure of risk associated with the project as the probability of occurrence…

Q: Merrill Corp. has the following information available about a potential capital investment Initial…

A: Net Present Value(NPV) is excess of PV of inflows over PV of outflows whereas IRR is rate that…

Q: Calculate the Payback Period of Project A (expressed in years, months and days) Calculate the…

A: Accounting rate of return (ARR) and benefit to cost ratio are calculated as shown below.

Q: not have the option a. What is the project's expected NPV if the tax is imposed? b. What is the…

A: Net present value is the determination of the current value of all the future cash flows of the…

Q: Assume that the company, where you are working as a team in Financial Department, is considering a…

A: Equivalent Annual Cost(EAC) is cost of an investment proposal that is spread over its useful life…

Q: Calculate the Rate of Return of the project. Explain, how and why?

A: Calculate the rate of return of a project by dividing the NPV of the project which is RMB…

Q: Problem 2. The first cost (FC), life (n), and annual benefits (A) for a prospective project are…

A: ParticularsPessimisticMost likelyOptimisticFirst cost$150,000.00$100,000.00$80,000.00Annual…

Q: Q4: Find the internal rate of return for the investment, the cash flow shown below using the (I.I.R)…

A: Internal rate of return or IRR is an evaluation approach that of capital budgeting where a return…

Q: The following mutually exclusive investment alternatives have been presented to you. The life of all…

A: The best alternatives refer to the lowest cost of alternative projects and these alternatives…

Q: A. What is the payback period of this uneven cash flow? Round your answer to 2 decimal places. years…

A: Payback period is the length of time that is required to recover the initial outlay on a business…

Q: Solution:. machinex Machine y. Inilical cost -30 -23 saluage vuwue ofM Cost scÉvice dibe 3 -2-5 -4…

A: Future worth analysis is an important concept of financial management and financial economics. It…

Q: A company is looking at five different potential projects, but it can only do one of them. Which…

A: IRR of all projects is greater than the MARR (10%), hence we need to analyse the incremental IRRs.…

Q: We are analyzing a project and have gathered the following data. Based on this data, what is the…

A: Average accounting rate of return =Average net income/initial investment

Q: 04: Find the internal rate of return for the investment, the cash flow shown below using the (I.I.R)…

A: Calculation of cash flows Year Revenue Cost Cash flow A B C=A-B 0 0 9000 -9000 1 3500…

Q: A power Plant has a capital cost of 12 M$ and annual return of 400,000 $, where B Plant has a…

A: Return on Capital employed = Annual return/capital cost

Q: Consider a new business line that your company will start: Costs to launch the project:…

A: Net present Value: This is a very important concept in capital budgeting. NPV can be computed by…

Q: Third Question: An investment of 4000$ and estimated salvage value of 3000$, and the following…

A: To evaluate the investment using the External Rate of Return (ERR) method, we need to follow these…

Q: Pls do fast ..i will like for sure Try to answer in typed form Consider the following natural…

A: Decision Tree making for the capital budgeting decisions helps to evaluate the cost and benefits…

Q: Exercise : Calculate Cash Flow The following offshore oil development project is being proposed.…

Q: A utility company is considering the following plans to provide a certain service required by…

A: Net present worth states that the money present today is more worthful than the money will receive…

Q: Briefly review the sensitivity analysis that is presented in the case exhibits. Under what…

A: In order to figure out the attractivenes sof the project, we need to compare the decision parameter,…

Q: termine the associated risk measure in this equipment investment in terms of standard deviation.…

A: Standard deviation is measure of the risk of the projects and can be measured by net present value…

Q: Construct NPV profiles for Plans A and B. B

A: WACC:Weighted average cost of capital (WACC) represents a company's average after-tax cost of…

Q: The construction market is suffering from a short-term economic recession, and one of the investors…

A: NPV is the one of the method in Capital budgeting for help in taking the decision on the basis of…

Q: oration has decided to invest in renewable energy sour ts energy needs for production. It is…

A: NPV is the net present value of the future cash flows NPV = Present value of annual cash flow -…

Q: A firm requires a payback period of 2 years or less. According to the payback period rule, which of…

A: Payback Period is the capital budgeting techniques which determines the period in which project…

Q: 3.1. Calculate the Payback period for the HMC. 3.2. Calculate the Net Present Value for both the…

A: Payback period refers to the period which is required to meet the initial investment with the annual…

Q: Is after-tax cashflow still the cash inflow even if it is the sum of NOPAT and depreciation in the…

A: Cash Inflow of Project: The amount of money that enters a firm is referred to as cash influx. Sales,…

Q: Iggy Company is considering three capital expenditure projects. Relevant data for the projects are…

A: In the field of financial analysis, a statistic known as the internal rate of return (IRR) is used…

Q: ed in the computation and a minimum attractive rate of return is set at 20%. Chapter 4: Products Our…

A: The payback period of investment is calculated as,

Q: EXAMPLE: Evaluating Alternal Three plans are considered for an engineering design problem: Plan A:…

A: The annual equivalent cost is that cost which is equivalent to all cost that are going to occur…

Q: At the beginning of the year, Klein Company's pension plan showed pension plan assets of $4 million…

A: The pension plan or retirement plan is a kind of saving scheme. The main objective of these funds is…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Exercise : Calculate Cash Flow
The following offshore oil development project is being proposed. What would be
your approach to address the opportunity ?
Production Data
: First Oil beginning of Year 3
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
Annual Oil Production
5
15
15
10
2.5
1.0
0.5
Technical Costs
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
Platform
30
30
Facilities
15
30
Tangible Drilling
10
15
10
4
Intangible Drilling
20
32
15
Fixed Opex
8
14
15
15
15
15
15
Variable Opex
US$ 0.40/bbl produced
Oil Price forecast
: US$ 20/bbl, expected to remain constant thereafter
Terms and Conditions : Royalty 25%
Tax rate 20%, Tax losses not allowed
Capital Allowance - Straight line at 25% p.a.,
Only start after First Oil production

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Way to approach this opportunity:

VIEW

Profit calculation schedule:

VIEW

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

(a) A project management consultant estimated that if a particular project was completed, t years after completion, N thousand persons would benefit directly from the project, where N(t) = 4.5t2 + 16t, 0st< 10 For what value of t, will the largest number of people receive direct benefits?
It is estimated that an investment alternative with an initial investment cost of 250000 TL will generate annual revenues of 85000 TL and annual expenses of 20000 TL. It is expected to have a scrap value of 95000 TL at the end of its 7-year life. Find out how sensitive the investment decision of this investment alternative is to its revenues. (MARR: %10) Select one: a. 0.32294 b. 0.48225 c. 0.05634 d. 0.27838 e. 0.082902 f. 0.1719 g. 0.52003 h. 0.37235
Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is: MB = 159 - 2.1Q and MC=36 + 0.9Q Where price is measured in dollars and quantity is measured in barrels. The total oil reserve is 100 tons. What will be the socially efficient quantity for period 1?
A pipeline engineer working in Kuwait for the oil giant BP wants to perform a present worth analysis on alternative pipeline routings—the first predominately by land and the second primarily undersea. The undersea route is more expensive initially due to extra corrosion protection and installation costs, but cheaper security and maintenance reduces annual costs. Use Present Worth Analysis with a MARR = 10% to determine which route should be selected.
Q7: Oil wells in the United States can operate and produce for an average of 20-40 years. Investing in an oil well requires foreseeing risks, opportunities, and costs associated with the project investment. Suppose you are an investor and considering investing in a project that will produce for 20 years. The expected annual production capacity is 25,000 barrels. The fixed cost of purchasing equipment, leasing land, drilling the well, and setting up production equipment is $15 million. The marginal cost of producing is $20 / barrel, and you expect the price of oil to be $80 / barrel for the entire lifespan of this rig. The annual interest rate is 10%. Should you invest? If yes, in which year will it start to be profitable? If no, why not?
5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000
There are 4 different alternatives for a company investment project. Find out which project would be more suitable according to the technical data below.
Calculate the rate of return (ROR) using the formula: ROR = (Net annual profit/investment)*100 With rate of interest = 10%
engineering economics
Problem 2. Based on benefit to cost ratio, determine which project should be chosen. Please work out in excel spreadsheet.
Question(3): A power plant is being considered in the dead sea location. For an initial investment of $170 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? b. What is the discounted payback period when the MARR is 4% c. Using an equivalency technique (FW, PW, or AW), MARR is 4P% per year, would you recommend investing in this project? per year?