Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 13, Problem 15P
To determine
Calculate the license value.
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An oil company has the opportunity to extract oil from a reserve in eight years with a per barrel profit of $50 per barrel. The current market rate of interest is 2 percent. The present value of this future extraction is about
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Permian Partners (PP) produces from aging oll fields 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 ol price was $65.60 per barrel in 2018.
PP has 76 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 $25.60. Also, ignore taxes.
a. Assume that oll 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 oll-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…
The stock of Nogro Corporation is currently selling for $16 per share. Earnings per share in the coming year are expected to be $2.60.
The company has a policy of paying out 40% of its earnings each year in dividends. The rest is retained and invested in projects that
earn a 20% rate of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of
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%
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not
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PVGO
Chapter 13 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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