Question

Calculate the NPV for the following investment with 6 years life time assuming a discount rate of 20% per year:

• The investor is a Non-integrated petroleum company
• Total producible oil in the reserve is estimated to be 2,400,000 barrels
• Production rate will be 400,000 barrels of oil per year from year 1 to year 6
• Mineral rights acquisition cost for the property will be $1,600,000 at time zero
• Intangible drilling cost (IDC) is expected to be $7,000,000 at time zero
• Tangible equipment cost is $4,000,000 at time zero
• Working capital of $1,500,000 also at time zero
• Equipment depreciation will be based on MACRS 5-years life depreciation starting from year 1 to year 6 (use the rates in table A-1 for 5-years half-year convention)
• The production selling price is assumed $50 per barrel which has 10% escalation each year beginning in year 2
• Operating cost is $1,500,000 annually with escalation rate of 10% beginning in year 2
• Income tax is 35%
• Royalty is 15%

Note: for depletion cost calculation you can amortize the Mineral rights acquisition cost equally over 6 years.

For this problem, you can assume that  if the firm has negative income in a given year, then the income tax will also be negative. Thus, you should have a negative number for the income tax in Year 0.

Answer 1

Tnittal Inves-rnen , 00,D 牛 tr 500 : boo 15 0D, DOD 牛5021350 73,357 , 39 ovos 다 502,sso 57757,784

2 3 千 5 barrels , 400,00D wuith escalatme0 00D 00D Yeas 2 501季2 escalating by ..from raz Roa 5J. on Sales

66,669 串266, 664 266MA 率2.C4,667 $266, 667 牛7,000 ,000 Costs Cowe bedoletay 41433, 333 キ,5,603,Ssı 후n,ma zs3 轩.903033 牛2,966,084 , 24,465,839 串2,601,66935, 426,16ユ キ6, 209,IA 牛6,96, b2- 丰7,68,129 卓8,563,oYY| 串5,818,333 41,6258534 12,5 >,883 $15166 4,438쉬5,00s421 $16, 31, Se tata 旱to,730 ,00 32, 7이,ooo 424,07, '00 千26,GolrYI。 29,283,825 82,302,67 0.334 チ,o, 818 r 160 Cumulatve Pv 8,94',309 串(5,067เจ4 413,721946 휘2,829,860 $11/768 1988