Find out the present value of the profit, Accounting Basics

Oil production has been proposed for an area along the coast off Southern California. Oil production would jeopardize the use of beaches along 10 miles of coast which are a major venue for surfing, bathing and other beach activities. The beach recreation runs to about 500,000 visitor days a year. Oil production would greatly reduce beach use, lowering it to about 100,000 visitor days. The oil production would last for 15 years. After that, the oilfield will have been depleted and oil production activities will cease. Once the oil production ends, beach visitation would partially recover, averaging about 350,000 visitor days per year. If there is no oil production, it is expected that beach recreation will continue at its present level indefinitely. Environmental economists studying beach recreation in Southern California have estimated that the value of an average trip to the beach in Southern California, in terms of the average consumer's surplus, is about $16 per visitor day. Oil production is expected to earn profits of $12 million per year for the 15 years of the oil production. In the following calculations use an interest rate of 5%.

(a) If mining starts now, what is the present value of the profit from oil production?

(c) If oil production is delayed and starts in five years time instead of now, what is the present value as of now, of the profit from oil production?

(d) If there is no oil production, what is the present value of beach recreation in the area?

(e) If oil production starts now, describe the time profile of the beach recreation that will occur in the area. What is the present value of this recreation?

(f) If oil production is delayed and starts in five years time instead of now, describe the time profile of the beach recreation that will occur in the area. What is the present value of this recreation?

g) If oil production starts now, what is the present value of the combined sum of economic flows that will occur - the profits from oil production plus the value of recreation?

h) If oil production starts is delayed and starts in five years time instead of now, what is the present value of the combined sum of economic flows that will occur - the profits from oil production plus the value of recreation?

i) Given three policy options - oil production starts now, oil production starts in five years time, or no oil production ever - which is the best option from an economic perspective?

Posted Date: 2/19/2013 5:12:38 AM | Location : United States







Related Discussions:- Find out the present value of the profit, Assignment Help, Ask Question on Find out the present value of the profit, Get Answer, Expert's Help, Find out the present value of the profit Discussions

Write discussion on Find out the present value of the profit
Your posts are moderated
Related Questions
Q. General-purpose financial statements? Accountants prepare general-purpose financial statements at usual intervals to meet many of the information needs of external parties a


Tips to be keep in mind while preparing the Financial Statements : 1. Objects given in the trial balance must be revealed only once as it is assumed that they are already adjust


The balance sheet account as of July 31, 1995 for XYZ company are : Capital: (fix lib)                            35,630 Office Equipment (ass)                  16730 Delivery

“Ledger is said to be the principal book entry and the transactions can even be directly entered into the ledger account.”

what are the internal sources of accounting?

Q. What are Accrued items explain with example? Delayed items consist of two types of adjusting entries asset/expense adjustments and liability/revenue adjustments. For instanc

Create an adjusted trial balance & journal entries Bank charges of $932.70 were not recorded in the books for 2014. These were credit card fees charged by the bank for Edwards

What does a business owner do when the cash balance approaches zero and there are bills to be paid? (Hint: look at the financing activities of the Cash Flow Statement and then lo