AutoSave (. Off) H ECON320_Test5_2014 (1) - Compatibility Mode Peasah B Bright PB X File Home Insert Design Layout References Mailings Review View Help Search Share Comments X Cut [A Copy Times New Ro * 12 - A" A" Aa A AaBbC AaBbCcI AaBbCcI AaBbC AaBbC AaBbCcD AaBbCc] Paste Format Painter BI U - ab x x A LA. 1 Heading 1 1 Normal No Spac... Heading 2 Title Subtitle Subtle Em... 41 4 Find * Gc Replace Select Dictate Clipboard Font Paragraph Styles Editing Voice Complete (in Microsoft Excel document) the following problem: Louisiana Drilling and Exploration, Inc. (LD&E) has the funds necessary to complete one of two risky oil and gas drilling projects. The first, Permian Basin 1, involves the recovery of a well that was plugged and abandoned five years ago but that may now be profitable, given improved recovery techniques. The second, Permian Basin 2, is a new onshore exploratory well that appears to be especially promising. Based on a detailed analysis by its technical staff, LD&E projects a ten-year life for each well with annual net cash flows as follows: Project Probability (P) Annual Cash Flow (CF) Permian Basin 1 0.0 $500,000 0.84 1,000,000 0.08 1,500,000 Permian Basin 2 0.18 300,000 0.64 900,000 0.18 1,500,000 In the recovery-project valuation, LD&E uses 20% and 32% discount rate for Permian Basin 1 and Permian Basin 2, respectively. Both projects involve land acquisition, as well as surface preparation and subsurface drilling costs of $3 million each. a). Calculate the expected value of annual cash flows for each project. b). Calculate the NPV for each project. c). Which project is preferred using the NPV criterion? Page 5 of 6 1165 words + 100% Type here to search 9 W T6 740 6/11/2020 9:52 PM