Question
Mr Blight the owner of Blight Oil exploration firm is evaluating a new Oil well in Calgary Alberta. The oil exploration engineer has just finished
Mr Blight the owner of Blight Oil exploration firm is evaluating a new Oil well in Calgary Alberta. The oil exploration engineer has just finished his analysis of the new Oil well. He has estimated that the Oil well will be productive for eight years, after which the well become dry. The Oil well will cost $450 million for exploration. The expected cashflow each year from the Oil well are shown below and Blight Oil exploration firm has a 12% required return on all its Oil well. Year Cash flow 0 -$450,000,000 1 63,000,000 2 85,000,000 3 120,000,000 4 145,000,000 5 175,000,000 6 120,000,000 7 95,000,000 8 75,000,000 9 -70,000,000
Required- Lets assume NPV is conceptually the best procedure for capital budgeting, why do you think that multiple measures are used in practice?
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