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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?
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..
Assume that interest rates on 20-year Treasury and corporate bonds are as follows: The differences in tese rates were probably caused primarily by
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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..
Harrison Co. issued 15-year bonds one year ago at a coupon rate of 7.1 percent. The bonds make semiannual payments.
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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..
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