5. A hydraulie fracturing project has an initial cost of S30 million. The projec

Question

5. A hydraulie fracturing project has an initial cost of S30 million. The project will yield 120,000 barrels of crude oil per year for 5 years. Crude oil sells for $60 per barrel (4 points each) a) What is the total benefit from the project for each of the five years? b) Assuming that the interest rate used for the project is 5%, what is the project's net present e) Based on your answer in (b), should the project d) Should the project be accepted or rejected if the e) Repeat (a) if the price of crude is $45 instead of value? be accepted? interest rate is 15%) instead $60 per barrel.

Explanation / Answer

c. The project should be accepted as NPV is positive.

d

D. Project should not be accepted as it has negative NVP]

E

a what is the benefit from the project for the each year Sr No Particulars amount a Selling price per barrel $ 60.00 b No of Barrel 120000 c Total Revenue (a*b) $             7,200,000

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