Question

An oil company is considering the development of one of its marginal assets in the North sea. The opportunity rate of return is 15%pa. Increment cost and income applications for the development of one of the scenoires are as follows:
Initial development cost: 12m
Additional annual operating and maintenance costs: 2m
Additional annual income:6m
Additional non-annual repair costs:4m
Repair frequency:3years
Expected remaining asset life:11 years
Additional decompromising costs:8 m
Calculate the following:
1) the net present value
2) the undiscounted payback period.
3) the discounted payback period.
4) the internal rate of return.
Would you recommend the development scenrio? Why?​

Answer 1

$7894561230. < >$

Answer:

D