Burtton Wheeler oil Company ltd, has taken out a lease on a property located at Cape...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Burtton Wheeler oil Company ltd, has taken out a lease on a property located at Cape Three Point Deep Water, and made a down payment of Ghc 5million. Additionally, the rent under the lease amounts to Ghc5million per annum. As part of the lease agreement, if the lease is cancelled, the initial payment of Ghc5million would be forfeited. Button Wheeler, CEO plans to use the property for oil and gas production and has estimated operations for the next 12 months to be as follows; Ghe million Revenue Less: Vat Cost of production G&G related costs Well costs Rent including down payment Administrative (professional fees). 115 15 100 50 www 12 13 10 2 87 Net profit before tax 13 No provision has been made by Burtton Wheeler oil, but it estimated that one half of the company's time would be devoted to the operations. The management is undecided whether to continue with their plans, because they know that they can sublet the property to another company Sky oil ltd, for a monthly rent of Ghc550,000 if they do not use the property themselves. Required. a.) Explain and identify the sunk costs and opportunity costs in the scenario depicted above. b.) Advise Burtton Wheeler oil company oil on the decision the company should take according to the information above. Burtton Wheeler oil Company ltd, has taken out a lease on a property located at Cape Three Point Deep Water, and made a down payment of Ghc 5million. Additionally, the rent under the lease amounts to Ghc5million per annum. As part of the lease agreement, if the lease is cancelled, the initial payment of Ghc5million would be forfeited. Button Wheeler, CEO plans to use the property for oil and gas production and has estimated operations for the next 12 months to be as follows; Ghe million Revenue Less: Vat Cost of production G&G related costs Well costs Rent including down payment Administrative (professional fees). 115 15 100 50 www 12 13 10 2 87 Net profit before tax 13 No provision has been made by Burtton Wheeler oil, but it estimated that one half of the company's time would be devoted to the operations. The management is undecided whether to continue with their plans, because they know that they can sublet the property to another company Sky oil ltd, for a monthly rent of Ghc550,000 if they do not use the property themselves. Required. a.) Explain and identify the sunk costs and opportunity costs in the scenario depicted above. b.) Advise Burtton Wheeler oil company oil on the decision the company should take according to the information above.
Expert Answer:
Answer rating: 100% (QA)
ANSWER a The sunk costs in this scenario are the initial payment of GH5 million which would be forfe... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Mrs Johnston has taken out a lease on a shop for a down payment of ?5000. Additionally, the rent under the lease amounts to ?5000 per annum. If the lease is cancelled, the initial payment of ?5000 is...
-
A business has taken out a $50,000 loan for a solar heating system, expecting to pay the annual payments partially from the fossil fuel savings, which currently represents $1,500/yr. plus out of...
-
Lupe made a down payment of $2100 toward the purchase of a new car. To pay the balance of the purchase price, she has secured a loan from her bank at the rate of 12%/year compounded monthly. Under...
-
The fraud examiner's report should have what characteristics? a. Accuracy and clarity b. Relevant and material information c. Should not contain opinions or prejudices of fraud examiner. d. All of...
-
Hypercom Corporationis a provider of electronic card payment terminals, peripherals, network products, and software. In its 2008 annual report, it reported current and long-term deferred tax assets...
-
Suppose that a course has a capacity of at most 240 people, but that 1550 invitations are sent out. If each person who receives an invitation has a probability of 0.135 of attending the course,...
-
Match the concept listed in items 1 through 8 with the most appropriate description listed in items a through h. Concept 1. Capital investment analysis 2. Type of environmental control 3. End-of-pipe...
-
At the beginning of 2011, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also...
-
Replicate the calculations that lead to the cost of goods sold reported in the income statement. How does this income statement group costs? 2. Estimate the income if Phelps were to produce and sell...
-
Berkshire Controllers usually finances its engineering projects with a combination of debt and equity capital. The resulting MARR ranges from a low of 4% per year, if business is slow, to a high of...
-
When a country exports a good because the world price is higher than the nominustrade domestic price, domestic purchases of the good ________ and domestic production of the good ________. A....
-
At a local discount store 5 toasters ovens and 8 slow cookers cost $350 while 9 toaster ovens and 5 slow cookers cost $395. How much does one toaster oven cost? How much is one slow cooker? Cost of a...
-
What does charitable purposes mean inyour opinion? Go online and find a state law dealing with tax exemption. Did it make sense? Did it define charitable purposes? Did looking up a state law help you...
-
Explain what laws/regulations can be used or applied to these people if they decide to file a discrimination complaint for not being accepted in a job because of their gender and age?
-
Lehigh University is planning to issue 5 year bonds with a face value of $50,000 on January 1, 2016. The coupon or stated rate for the bond is 10% and is paid quarterly. The market rate for similar...
-
Gelay J. 35 y.o. was admitted to Benguet General Hospital for shortness of breath, weakness, productive cough, chest pains and epigastric discomfort. Vital signs upon admission were: T- 38.2 C, P-...
-
1. determine each projects Accounting rate of return 2. Determine each project payback period 3. Using a discount rate of 10%, calculate the net present value of each project 4. Determine the...
-
Consider the advantages and disadvantages of extending property rights so that everyone would have the right to prevent people imposing any costs on them whatsoever (or charging them to do so).
-
Sticky Wicket (SW) manufactures cricket bats using high quality wood and skilled labour using mainly traditional manual techniques. The manufacturing department is a cost centre within the business...
-
Distinguish between risk and uncertainty.
-
Distinguish between a standard absorption and a standard variable costing system.
-
Dirty solutions typically have lower mass transfer rates than clean solutions. Where does the increased resistance come from?
-
Explain why infinite dilution Fickian diffusivities for binary liquid systems are not equal, \(D_{\mathrm{AB}}^{\circ} eq D_{\mathrm{BA}}^{\circ}\)
-
What is a controlling resistance? How do you determine which resistance, if either, is controlling?
Study smarter with the SolutionInn App