Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Savod Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.84 million barrels per year in 2018, but production is declining

image text in transcribed
Savod Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.84 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 $25.40 per barrel. The average oil price was $65.40 per barrel in 2018. PP has 74 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 $25 40. Also, ignore taxes. a. Assume that oil prices are expected to fall to $60.40 per barrel in 2019, $55.40 per barrel in 2020, and $50.40 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.) EPSP -2. Is it equal to the cost of capital? NO

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: E Thomas Garman, Raymond Forgue

11th Edition

1111531013, 9781111531010

More Books

Students also viewed these Finance questions