Investment in rigging equipment and related personnel costs required to pump the

Question

Investment in rigging equipment and related personnel costs
required to pump the oil $ 6,200,000
Net increase in inventory and receivables associated with the
drilling and production of the reserves. Assume this investment
will be recovered at the end of the project. 1,152,000
Net cash inflow from operations for the expected life of the reserves, by year:
2010 1,920,000
2011 3,456,000
2012 1,632,000
Salvage value of machinery and equipment at the
end of the well's productive life 960,000
Cost of capital 10 %


Using Table 6-4, calculate the net present value of the proposed investment in the drilling and production operation. Assume that the investment will be made at the beginning of 2010, and the net cash inflows from operations will be received in a lump sum at the end of each year. (Ignore income taxes.) (Round pv factor to 4 decimal places, intermediate calculations and the final answer to the nearest dollar amount. Omit the "$" sign in your response.)



Net Present Value?

Explanation / Answer

NPV = -6200000 + 1920000/1.1 + 3,456,000 /1.21 + (1,632,000+960,000+1,152,000 ) /1.331 = $ 17,853.4128 I'm sure about this!

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