Problem 4-28 Valuing a business Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.94 million barrels per year in 2018, but production is declining at 5% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.40 per barrel. The average oil price was $66.40 per barrel in 2018. PP has 8.4 million shares outstanding. The cost of capital is 7%. All of PP's 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 $26.40. Also, ignore taxes. a. Assume that oil prices are expected to fall to $61.40 per barrel in 2019, $56.40 per barrel in 2020, and $51.40 per barrel in 2021. After 2021, assume a long-term trend of oil-price increases at 3% per year. What is the ending 2018 value of one PP share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Share value 2016 b-1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.) EPS/P ratio b-2. Is it equal to the 7% cost of capital? O Yes Problem 4-28 Valuing a business Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.94 million barrels per year in 2018, but production is declining at 5% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.40 per barrel. The average oil price was $66.40 per barrel in 2018. PP has 8.4 million shares outstanding. The cost of capital is 7%. All of PP's 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 $26.40. Also, ignore taxes. a. Assume that oil prices are expected to fall to $61.40 per barrel in 2019, $56.40 per barrel in 2020, and $51.40 per barrel in 2021. After 2021, assume a long-term trend of oil-price increases at 3% per year. What is the ending 2018 value of one PP share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Share value 2016 b-1. What is PP's EPS/P ratio? (Do not round intermediate calculations. Round your answer to 4 decimal places.) EPS/P ratio b-2. Is it equal to the 7% cost of capital? O Yes