Hello,A task force of capital budgeting analysts at Morrison Ltd., collected the following data concerning the drilling and production of known petroleum reserves at an offshore location. Use the appropriate factor(s) from the table provided. Round the PV factors to 4 decimal places.Investment in rigging equipment and related personnel costs required to pump the oil $6,800,000Net increase in inventory and receivables associated with the drilling and production of the reserves. Assume this investment will be recovered at the end of the project. $1,180,000Net cash inflow from operations for the expected life of the reserves by year: 20161,980,000 20173,580,000 20181,680,000Salvage value of machinery and equipment at the end of the well's productive life 1,170,000Cost of Capital 6%Question: Calculate the net present value of the proposed investment in the drilling and production operation. Assume that the investment will be made at the beginning of 2016, and the net cash inflows from operations will be received in a lump sum at the end of each year (ignore income taxes).Net Present Value = ???thanks...

The Net Present Value of the project has to be determined by deducting the present values of all…

Answered: Hello, A task force of capital…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 11P

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Hello,

A task force of capital budgeting analysts at Morrison Ltd., collected the following data concerning the drilling and production of known petroleum reserves at an offshore location. Use the appropriate factor(s) from the table provided. Round the PV factors to 4 decimal places.

Investment in rigging equipment and related personnel costs required to pump the oil		$6,800,000
Net increase in inventory and receivables associated with the drilling and production of the reserves. Assume this investment will be recovered at the end of the project.		$1,180,000
Net cash inflow from operations for the expected life of the reserves by year:
	2016	1,980,000
	2017	3,580,000
	2018	1,680,000
Salvage value of machinery and equipment at the end of the well's productive life		1,170,000
Cost of Capital		6%

Question: Calculate the net present value of the proposed investment in the drilling and production operation. Assume that the investment will be made at the beginning of 2016, and the net cash inflows from operations will be received in a lump sum at the end of each year (ignore income taxes).

Net Present Value = ???

thanks...

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