You own an oil pipeline that will generate a $2.8 million cash return over the coming year. The pipeline's operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 5.5% per year. The discount rate is 12%. a. What is the PV of the pipeline's cash flows if its cash flows are assumed to last forever? (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Present value b. What is the PV of the cash flows if the pipeline is scrapped after 15 years? (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Present value
You own an oil pipeline that will generate a $2.8 million cash return over the coming year. The pipeline's operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 5.5% per year. The discount rate is 12%. a. What is the PV of the pipeline's cash flows if its cash flows are assumed to last forever? (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Present value b. What is the PV of the cash flows if the pipeline is scrapped after 15 years? (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Present value
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
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education