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A company starts using an oil rig at a cost as follows:                                                  $million Construction                               200 Installation                                  100 The oil starts pumping at the start of the year. At this point, the company signs a license with the government agreeing to dismantle the rig when the oil runs out which is estimated to be 20years. the cost of dismantling the rig is estimated at $120million and the discount rate is 10%. What will be the effect on the Financial Statements in the current year. Show the amount that will be in the financial statement

A company starts using an oil rig at a cost as follows:                                                  $million Construction                               200 Installation                                  100 The oil starts pumping at the start of the year. At this point, the company signs a license with the government agreeing to dismantle the rig when the oil runs out which is estimated to be 20years. the cost of dismantling the rig is estimated at $120million and the discount rate is 10%. What will be the effect on the Financial Statements in the current year. Show the amount that will be in the financial statement

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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A company starts using an oil rig at a cost as follows:

                                                 $million

Construction                               200

Installation                                  100

The oil starts pumping at the start of the year. At this point, the company signs a license with the government agreeing to dismantle the rig when the oil runs out which is estimated to be 20years. the cost of dismantling the rig is estimated at $120million and the discount rate is 10%.

What will be the effect on the Financial Statements in the current year. Show the amount that will be in the financial statement

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