DATA:

( 35 pts total) After making sure that the cash-flow models for all scenarios are correct according to the solution provided for Homework-2, use the NCF After Tax (Column \#14) with an i* of 8% per year to; (a) Construct the NPV profile using 5% increments (0%,5%,8%(i),10%15%,20%,25%,.,100% etc.) for all scenarios and show them on the same plot by indicating important points (10 pts) (b) Construct the cumulative NPV diagram for all scenarios on the same plot and indicate maximum capital at risk and discounted payback point (10 pts) (c) Calculate the following for all scenarios ( 9 pts): - Net present value - Rate of return - Discounted profitability index (DPI) (d) Discuss the results by comparing all scenarios and recommend the one that seems to be best scenario (6 pts). (40 pts) Tables below show the cash-flow models for Scenarios 1,2 and 3 , respectively. Sample Calculation for Depreciation: For Scenario-1, Year-1: Sum-of-the-years digits: i=1nm=1+2+3+4+5+6+7+8+9+10=55 Tangible investment (C)=$2,000,000, Salvage (S)=$0 (CS)=$2,000,000$0=$2,000,000 Depreciation allowance (n=10,m=1) : D=i=1nmnm+1(CS)=55101+1($2,000,000)=$363,636 Sample Calculation for Depletion: For Scenario-1, Year-1: Net Revenue after Depr. and Expenses: $6,436,364 Therefore, depletion allowance cannot exceed 50% of $6,436,364=$3,218,182 Based on Percentage Depletion of 20%,20% of total revenues of $7,000,000,$1,400,000 is allowed. Since this amount is less than $3,218,182, the allowance would be $1,400,000 (40 pts) For an oil field, 3 different field development plans are under consideration for the next 10 years. Annual oil production forecast (MSTB) for each plan are given below: - Investment requirements (capital expenses) and operating costs for these plans and other considerations are given in the table below, with other economic constants. - All capital investments will be made at the beginning of the project (Year 0 ). - Operating costs (OC) only for the 1st year of operation are given below. These costs are expected to escalate by 10% in each subsequent year, i.e.: OCn=OCn1(1+i) - Oil price is assumed to remain stable during the next 10 years. - Estimated life of all tangible items is 10 years and the salvage value in depreciation calculations can be taken as 0. Construct the cash-flow table for all plans to obtain the Net Cash Flow Before Tax (Column 12) and After Tax (Column 14) and show the following: ( 35 pts total) After making sure that the cash-flow models for all scenarios are correct according to the solution provided for Homework-2, use the NCF After Tax (Column \#14) with an i* of 8% per year to; (a) Construct the NPV profile using 5% increments (0%,5%,8%(i),10%15%,20%,25%,.,100% etc.) for all scenarios and show them on the same plot by indicating important points (10 pts) (b) Construct the cumulative NPV diagram for all scenarios on the same plot and indicate maximum capital at risk and discounted payback point (10 pts) (c) Calculate the following for all scenarios ( 9 pts): - Net present value - Rate of return - Discounted profitability index (DPI) (d) Discuss the results by comparing all scenarios and recommend the one that seems to be best scenario (6 pts). (40 pts) Tables below show the cash-flow models for Scenarios 1,2 and 3 , respectively. Sample Calculation for Depreciation: For Scenario-1, Year-1: Sum-of-the-years digits: i=1nm=1+2+3+4+5+6+7+8+9+10=55 Tangible investment (C)=$2,000,000, Salvage (S)=$0 (CS)=$2,000,000$0=$2,000,000 Depreciation allowance (n=10,m=1) : D=i=1nmnm+1(CS)=55101+1($2,000,000)=$363,636 Sample Calculation for Depletion: For Scenario-1, Year-1: Net Revenue after Depr. and Expenses: $6,436,364 Therefore, depletion allowance cannot exceed 50% of $6,436,364=$3,218,182 Based on Percentage Depletion of 20%,20% of total revenues of $7,000,000,$1,400,000 is allowed. Since this amount is less than $3,218,182, the allowance would be $1,400,000 (40 pts) For an oil field, 3 different field development plans are under consideration for the next 10 years. Annual oil production forecast (MSTB) for each plan are given below: - Investment requirements (capital expenses) and operating costs for these plans and other considerations are given in the table below, with other economic constants. - All capital investments will be made at the beginning of the project (Year 0 ). - Operating costs (OC) only for the 1st year of operation are given below. These costs are expected to escalate by 10% in each subsequent year, i.e.: OCn=OCn1(1+i) - Oil price is assumed to remain stable during the next 10 years. - Estimated life of all tangible items is 10 years and the salvage value in depreciation calculations can be taken as 0. Construct the cash-flow table for all plans to obtain the Net Cash Flow Before Tax (Column 12) and After Tax (Column 14) and show the following