Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.87 million barrels per year in 2018, but production is declining at 9% per year for the foreseeable future. Costs of production, transportation, and administration add up to $25.70 per barrel. The average oil price was $65.70 per barrel in 2018. PP has 7.7 million shares outstanding. The cost of capital is 11%. All of PPs net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $25.70. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.70 per barrel in 2019, $55.70 per barrel in 2020, and $50.70 per barrel in 2021. After 2021, assume a long-term trend of oil-price increases at 7% per year. What is the ending 2018 value of one PP share? b-1. What is PPs EPS/P ratio? b-2. Is it equal to the 11% cost of capital?

Yes or No