Q5 solution Your company has a well that needs some work to resume production. The work will cost $550,000. After the work iscomplete, the well is expected to produce the annual oil production shown in the following table. Your WI is 80% and yourNRI is 68%. Operating costs are estimated to be $35,000 per year. Assume a constant oil price of $85/Bbl. Calculate totalnet cash flow (BFIT) for this investment.Year1238/8thsProduction,Bbl500042003600Answer:2 Would you rather own (A) WI = 80%, NRI = 64% or (B) WI = 40%, NRI = 34% ? WHY?3 You are going to invest $30,000. Your goal is to double your investment in 10 years. At approximately whatinterest rate do you need to invest?4 Your first job gives you an incentive to stay for a minimum of 3 years. At the end of 3 years, the company willgive you a bonus of $15,000. Assuming an interest rate of 6% per year, what is the present value of theBonus?Your bank has quoted you a nominal interest rate of 17%. Your loan will be compounded quarterly. What isthe effective interest rate?

Effective interest rate is the actual rate of return in an investment after considering the effect…

Answered: Your bank has quoted you a nominal…

Your bank has quoted you a nominal interest rate of 17%. Your loan will be compounded quarterly. What is the effective interest rate?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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Question

Q5 solution

Your company has a well that needs some work to resume production. The work will cost $550,000. After the work is
complete, the well is expected to produce the annual oil production shown in the following table. Your WI is 80% and your
NRI is 68%. Operating costs are estimated to be $35,000 per year. Assume a constant oil price of $85/Bbl. Calculate total
net cash flow (BFIT) for this investment.
Year
1
2
3
8/8ths
Production,
Bbl
5000
4200
3600
Answer:
2 Would you rather own (A) WI = 80%, NRI = 64% or (B) WI = 40%, NRI = 34% ? WHY?
3 You are going to invest $30,000. Your goal is to double your investment in 10 years. At approximately what
interest rate do you need to invest?
4 Your first job gives you an incentive to stay for a minimum of 3 years. At the end of 3 years, the company will
give you a bonus of $15,000. Assuming an interest rate of 6% per year, what is the present value of the
Bonus?
Your bank has quoted you a nominal interest rate of 17%. Your loan will be compounded quarterly. What is
the effective interest rate?

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