Value of an oil company with substantial oil reserves

Assignment Help Financial Management
Reference no: EM131540834

You have been asked to analyze the value of an oil company with substantial oil reserves. The estimated reserves amount to 10,000,000 barrels, and the estimated present value of the development cost for each barrel is $12. The current price of oil is $20 per barrel, and the average production cost is estimated to be $6 per barrel. The company has the rights to these reserves for the next twenty years, and the twenty year bond rate is 7%. The company also proposes to extract 4% of its reserves each year to meet cash flow needs. The annualized standard deviation in the price of the oil is 20%.

What is the value of this oil company?

Reference no: EM131540834

Questions Cloud

Options are six-month european options and exercise price : The options are six-month European options and the exercise price of these options is $50 per share.
What is value of call option with strike price and maturity : What is the value of a call option with strike price 45 and maturity of 5 months?
Profitability index compare to npv as tools for projects : How do the IRR, payback period, 5 year cumulative EBITDA, and profitability index compare to NPV as tools for evaluating projects?
Maple bonds-yankee bonds-bulldog bonds and kiwi bond : Briefly describe the following International Bonds-Maple bonds,Yankee bonds,Bulldog bonds and Kiwi bond.
Value of an oil company with substantial oil reserves : You have been asked to analyze the value of an oil company with substantial oil reserves. What is the value of this oil company?
What is the expected return for your portfolio : What is the expected return for your portfolio.
How have they impacted firm strategy toward its financing : Analyze its competitors. How have they impacted the firm’s strategy toward its financing?
About new project that will be financed with all debt : Exxon-Mobil is thinking about a new project that will be financed with all debt.
Estimate the value of the firm : XYZ Corporation has $500 million in zero-coupon debt outstanding, due in five years. Estimate the value of the firm.

Reviews

Write a Review

Financial Management Questions & Answers

  Raised the maximum amount of short-term funds

The Nelson Company has $1,035,000 in current assets and $450,000 in current liabilities. Its initial inventory level is $360,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term..

  Differences in tese rates were probably caused primarily

Assume that interest rates on 20-year Treasury and corporate bonds are as follows: The differences in tese rates were probably caused primarily by

  Global integration-growing importance of global marketing

Based on topic of Global Markets, please post your comments on any one of the two questions. More and more companies are looking beyond the domestic market. Identify and briefly describe some of the forces that have resulted in increased global integ..

  What is the companys cost of common equity

Koshun Company just paid a dividend of $0.90. The company's common stock currently sells at a price of $30.00 and its dividend grows at a constant rate of 7.00%. What is the company's cost of common equity (RE)?

  Thinking about replacing an old computer with a new one

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,400,000; the new one will cost, $1,660,000. The new machine will be depreciated straight-line to zero over its five-year life.

  Sensitive is operating cash flow to changes in quantity sold

Consider a four-year project with the following information: Initial Fixed Asset Investment $480,000 Price $31 Variable Costs $18 Fixed Costs $320,000 Quantity Sold 85,000 units Tax Rate 34% *Straight-line depreciation to zero over the 4-year life *Z..

  What is the net profitability in dollars

An insurance company collected $4.4 million in premiums and disbursed $2.04 million in losses. Loss adjustment expenses amounted to 7.4 percent and dividends paid to policyholders totaled 2 percent. The total income generated from their investments w..

  Equal weighting scheme to an optimal weighting scheme

An investor has designed a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 30%. The correlation coefficient between the return on A and B is 0.25. If the inve..

  Zero-coupon bond has a face value

A zero-coupon bond has a face value of $210 and matures in 1 year. The rate of return on equally risky assets is 5% (.05). What will its price be today? Suppose that the price were below the number you found. Can you explain why any price below the o..

  The bonds make semiannual payments

Harrison Co. issued 15-year bonds one year ago at a coupon rate of 7.1 percent. The bonds make semiannual payments.

  Illustrate about the EOQ model

Tiger Corporation purchases 1,180,000 units per year of one component. What do your answers illustrate about the EOQ model?

  What is the firm cost of equity

The market rate of return is 11.8 percent and the risk-free rate is 3.45 percent. Galaxy Co. has 36 percent more systematic risk than the overall market and has a dividend growth rate of 3.5 percent. The firm's stock is currently selling for $42 a sh..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd