10-1sol - PROBLEM 10-1 Given Available gas (MCF) Price of...

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PROBLEM 10-1 Given Available gas (MCF) 50,000,000 Price of Gas (today) $14.03 per MCF Gas Price Next Year High $18.16 Low $12.17 Forward price for next year $14.87 Development cost per MCF $4.00 Debt (on the property) $450,000,000 Interest rate on debt 10% Debt maturity 1 year Asking price for Equity $50,000,000 Risk free rate of interest 6.0% Income tax rate 0.0% Option Exercise price/MCF $13.90 Solution Revenue (hedged) $743,500,000 Less: Development cost (200,000,000) Less: Interest expense $(45,000,000) EBT $498,500,000 Less: Taxes $- Net Income $498,500,000 Less: Principal Payment $(450,000,000) EFCF $48,500,000 Estimated value of the equity $45,754,717 High Price for Gas Low Price for Gas Revenue (Not hedged) $908,000,000 $608,500,000 Less: Development cost (200,000,000) (200,000,000) Less: Interest expense $(45,000,000) $(45,000,000) EBT $663,000,000 $363,500,000 Less: Taxes $- $- Net Income $663,000,000 $363,500,000 Less: Principal Payment $(450,000,000) $(450,000,000) EFCF $213,000,000
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This note was uploaded on 07/24/2009 for the course FIN FIN taught by Professor Robbani during the Summer '09 term at University of Maryland Baltimore.

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10-1sol - PROBLEM 10-1 Given Available gas (MCF) Price of...

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