Calculate After-Tax Cash Flow, NPV (minimum ROR=20%) and ROR for the following investment with a 6-year lifetime:
Question:
Calculate After-Tax Cash Flow, NPV (minimum ROR=20%) and ROR for the following investment with a 6-year lifetime:
The investor is a non-integrated oil company.
The total producible oil in the reserve is estimated to be 2,400,000 barrels.
The production rate will be 400,000 barrels of oil per year from year 1 to year 6.
The mining rights acquisition cost for the property would be $1,600,000 at zero time.
Intangible drilling cost (IDC) expected to be $7 million at zero time
Tangible equipment cost is $3,000,000 at zero instant $1,500,000 in working capital at zero time
Equipment depreciation will be based on MACRS 5-year life depreciation from year 1 to year 6
The production selling price is assumed to be $45 per barrel, increasing 10% each year from year 2.
The operating cost is $1,500,000 per year and there is a 10% increase from year 2.
Income tax 40%
Copyright 15%
Expert Answer:
To calculate the aftertax cash flow NPV and rate of return ROR for the investment we need to consider the cash inflows and outflows over the 6year lif... View the full answer
