undefined

p. 265 NPV, and IRR 10-16.Joanne Crale is an independent petroleum geologist. She is taking advantage of every opportunity to lease the mineral rights of land she thinks lies over oil reserves. She thinks there are many reservoirs with oil reserves left behind by major corporations when they plugged and abandoned fields in the 1960s. Ms. Crale knows that with today's technology, production can be sustained at much lower reservoir pressures than was possible in the 1960s. She would like to lease the mineral rights from George Hansen and Ed McNeil, the landowners. Her net cost for this current oil venture is $5 million. This includes costs for the initial leasing and three planned development wells. The expected positive net cash flows for the project are $1.85 million each year for four years. On depletion, she anticipates a negative cash flow of $250,000 in year 5 because of reclamation and disposal costs. Because of the risks involved in petroleum exploration, Ms. Crales required rate of return is 10 percent. a. Calculate the net present value for Ms. Crale's project. b. Calculate the internal rate of return for this project. c. Would you recommend the project