Question
Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.92 million barrels per year in 2016, but production is declining at
Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.92 million barrels per year in 2016, but production is declining at 9% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.20 per barrel. The average oil price was $66.20 per barrel in 2016. PP has 8.2 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 $26.20. Also, ignore taxes. a. Assume that oil prices are expected to fall to $61.20 per barrel in 2017, $56.20 per barrel in 2018, and $51.20 per barrel in 2019. After 2019, assume a long-term trend of oil-price increases at 7% per year. What is the ending 2016 value of one PP share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a- Share value2016 $
b-1. What is PPs EPS/P ratio? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started