Burtton Wheeler oil Company ltd, has taken out a lease on a property located at Cape...

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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.

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