he Drillago Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $15 million and has an estimated life of 10 years. The expected future cash inflows for the project are as shown in the following table. Year Cash Inflows 1 $ 600,000 2 1,000,000 3 1,000,000 4 2,000,000 5 3,000,000 6 3,500,000 7 4,000,000 8 6,000,000 9 8,000,000 10 12,000,000 The firm’s current cost of capital is 13%. Solution Estimated life (years) 10 Cost-of-capital (r) 13% Initial investment $ 15,000,000 Year Cash Flow 0 $ -15,000,000 1 600,000 2 1,000,000 3 1,000,000 4 2,000,000 5 3,000,000 6 3,500,000 7 4,000,000 8 6,000,000 9 8,000,000 10 12,000,000 Year Payback 0 $ -15,000,000 1 2 3 4 5 6 7 8 9 10 By using cell reference calcue the paycheck for years 0:10, respectively

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

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The Drillago Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $15 million and has an estimated life of 10 years. The expected future cash inflows for the project are as shown in the following table.


Year	Cash Inflows
1	$ 600,000
2	1,000,000
3	1,000,000
4	2,000,000
5	3,000,000
6	3,500,000
7	4,000,000
8	6,000,000
9	8,000,000
10	12,000,000

The firm’s current cost of capital is 13%.

Solution

	Estimated life (years)	10
	Cost-of-capital (r)	13%
	Initial investment	$ 15,000,000

		Year	Cash Flow
		0	$ -15,000,000
		1	600,000
		2	1,000,000
		3	1,000,000
		4	2,000,000
		5	3,000,000
		6	3,500,000
		7	4,000,000
		8	6,000,000
		9	8,000,000
		10	12,000,000

Year	Payback
0	$ -15,000,000
1
2
3
4
5
6
7
8
9
10

By using cell reference calcue the paycheck for years 0:10, respectively

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