quiz3sol

# quiz3sol - Spring 1999 P ro b le m 1 V S = A T O p e r a...

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Unformatted text preview: Spring 1999 P ro b le m 1 V S = A T O p e r a tin g M a r g in * ( 1 - R e in v e s tm e n t R a te ) * ( 1 + g ) /( W A C - g ) R e in v e s tm e n t R a te = g / R O C = g / ( A T O p e r a tin g M a r g in * S a le s /C a p ita l) L e t th e m a r g in fo r G e n e r ic O f ic e b e x , V S fo r G e n e r ic O f ic e = 1 .5 = x ( 1 - .0 5 /2 x ) ( 1 .0 5 ) /( .1 0 - .0 5 ) S o lv e fo r x , x = ( 1 .5 *.0 5 + ( .0 5 /2 ) *1 .0 5 ) /1 .0 5 x = 9 .6 4 % H K 's a fte r - ta x o p e r a tin g m a r g in = 9 .6 4 % ( 1 .0 5 ) = 1 0 .1 3 % ! I a ls o g a v e fu l c r e d it if y o u a d e d 5 % to g e H K 's V S r a tio = .1 0 1 3 ( 1 - .0 5 /2 *.1 0 1 3 ) ( 1 .0 5 ) /( .1 0 - .0 5 ) = 1 .6 0 2 3 ! N o te th a t if y o u d o n o t a d ju s g e t 1 .5 7 5 . P ro b le m 2 a . V a lu e o f D e v e lo p e d R e s e r v e s = 1 0 ,0 0 * ( 3 0- 2 0 ) * ( P V o f A n u ity , 5 y e a r s , 9 % ) = \$ 3 8 ,8 9 6 ,5 1 3 b . V a lu e o f U n d e v e lo p e d R e s e r v e s ( o n D C F b a s is ) V a lu e o f o il in th e g r o u n d = 4 0 ,0 0 * ( 3 0- 2 0 ) * ( P V o f A n u ity , 9 % , 1 2 .5 y e a r s ) = # # ! 4 0 b a r e ls a y e a r fo r 1 2 .5 y e a r s V a lu e o f o il in th e g r o u n d a l o w in g fo r d e v e lo p m e n t la g = 2 9 ,3 0 9 ,3 1 /1 .0 8 = # # F ix e d c o s t o f d e v e lo p m e n t = # # D C F V a lu e o f U n d e v e lo p e d r e s e r v e s = # # I a ls o g a v e fu l c r e d it fo r a n u m b e r o f v a r ia tio n s , in c lu d in g a . A s u m in g th a t c o s ts a n d p r ic e s a r e in p r e s e n t v a lu e d o l a r s , in w h ic h c a s e th e v a lu e o f r e s e r v e s is [5 0 0 *( 3 0- 2 0 ) ]/1 .0 8 = 4 6 ,2 9 6 ,2 9 c . In p u ts fo r O p tio n P r ic in g M o d e l y = A n u a l P r o d u c tio n R e v e n u e /R e s e r v e s = 4 0 ,0 0 /5 0 ,0 0 = 8 .0 % ! M a n y o f y o u u s e d 1 /1 5 . Y o u y o u r p r o d u c tio n p o te n tia l is m S = P V o f r e s e r v e s d is c o u n te d b a c k b y d e v e lo p m e n t la g = \$ 2 7 ,1 3 8 ,2 5 1 ! F u l c r e d it a ls o fo r \$ 4 6 ,2 9 6 K = U p fr o n t C o s t o f D e v e lo p in g R e s e r v e s = \$ 5 0 ,0 0 ,0 0 t = P e r io d fo r w h ic h fir m h a s r ig h ts = 1 5 V a r ia n c e = E x p e c te d v a r ia n c e in ln ( g o ld p r ic e s ) = 0 .0 9 ! U s e fo r w a r d lo k in g v a r ia n c r = R is k fr e r a te = 6 .0 % d . T h e d e v e lo p e d r e s e r v e s w il b e c o m e le s v a lu a b le , s in c e o il p r ic e s a r e d o w n ....
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