FINC2012 Individual Assignment Semester 2 2024 - DUE 13 September 2024

FINC2012 Individual Assignment Semester 2 2024 - DUE 13 September 2024 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... FINC2012 Semester 2 2024 Individual Assignment Due 13th September 2024 (Maximum word limit: 1,500 words) This is an individual assignment. This means that you are required to write your own answers to the questions. The Turnitin system checks for any copied work The Operations Department at PetroDynamics oversees all company activities related to gathering, purchasing, processing, and selling of oil. You are a recent graduate who was recently hired as a financial analyst to support the department. One of your tasks is to review the projections for a proposed ten-year oil purchase project created by one of the firm's field engineers. The ten-year project’s cash flow projections are based on the following assumptions and estimates: • The required initial capital expenditure for the project involves a $20 million cost to lay a new oil pipeline. The project is expected to be fully depreciated on a straight-line basis over its ten-year lifetime. The project is assumed to have no salvage value at the end of its life. • The project requires an investment of $1,250,000 in net working capital at the project’s inception. This is assumed to be fully recovered at the end of the project. • The oil well is expected to produce 1,000 barrels of oil per day in the first year, with production declining over the following nine years. The oil production is expected to decrease by 15% each year after the first year. • A fee consisting of 60% of the wellhead oil market price must be paid to the oil producer. For example, if the wellhead market price is $100 per barrel, 60% ($60) is paid to the oil producer. This percentage is expected to remain constant over the life of the project. • Other operational variable costs of $8.50 per barrel will be incurred in the project. These are also expected to be constant over the life of the project. • The current oil price at the wellhead is $80 per barrel and is assumed to remain at this level over the entirety of the project’s life. • The project's cost of capital is 12%. • The corporate tax rate is 35%. • All dollar magnitudes are in nominal amounts. Task 1 (5 marks): Based on the information and forecasts above, calculate the NPV and IRR for the proposed project. Should the project be adopted? Explain your answer. What reservations, if any, would you have about recommending the adoption of the project to your immediate Senior Manager? Justify your response.