Q3. The oil company AA anticipates an annual oil production forecast as given in the table...

 

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Q3. The oil company AA anticipates an annual oil production forecast as given in the table below, without any associated gas production. The company wants to evaluate the profitability of the wells. The operation cost is $20,000 per month. The current oil price is $60/STB, and the severance tax is 7.085% of the gross value. Assuming the minimum acceptable rate of return is 8%, WI is 100%, NRI is 87.5%, and the initial investment in 2015 is $2,000,000. Calculate the following as of 01/01/2015 using both mid-year rule and end-year rule: a. The Net Present Value (NPV) b. The Profitability Index (PI) C. The Long-Run Marginal Cost (LRMC) d. The Internal Rate of Return (IRR) e. What is the difference between mid-year and end-year rule calculations? 2016 20,801 2017 18,248 Oil Production, STB 2018 15,845 2019 15,059 2020 12,391 Q3. The oil company AA anticipates an annual oil production forecast as given in the table below, without any associated gas production. The company wants to evaluate the profitability of the wells. The operation cost is $20,000 per month. The current oil price is $60/STB, and the severance tax is 7.085% of the gross value. Assuming the minimum acceptable rate of return is 8%, WI is 100%, NRI is 87.5%, and the initial investment in 2015 is $2,000,000. Calculate the following as of 01/01/2015 using both mid-year rule and end-year rule: a. The Net Present Value (NPV) b. The Profitability Index (PI) C. The Long-Run Marginal Cost (LRMC) d. The Internal Rate of Return (IRR) e. What is the difference between mid-year and end-year rule calculations? 2016 20,801 2017 18,248 Oil Production, STB 2018 15,845 2019 15,059 2020 12,391

Answer rating: 100% (QA)

ANSWER a The Net Present Value NPV Midyear rule 1656326 Endyear rule 1693413 b The Profitability Index PI Midyear rule 148 Endyear rule 152 C The Long... View the full answer