Petroleum Inc

question 35

Multiple Choice

Petroleum Inc. (PI) controls off-shore oil leases. It is considering the construction of a deep-sea oil rig at a cost of $500 million. The price of oil is $100/bbl. and extraction costs are $50/bbl. PI expects costs to remain constant. The rig will produce an estimated 1,200,000 bbl. per year forever. The risk-free rate is 10 percent per year, which is also the cost of capital. (Ignore taxes) . Suppose that oil prices are uncertain and are equally likely to be $120/bbl. or $80/bbl. next year. Suppose that PI has the option to postpone the project by one year. Calculate the value of the real option to postpone the project for one year. (There is some rounding in the answer.)

• A)+$30 million
• B)+$50 million
• C)+$54 million
• D)+$70 million

Interpret the implications of price-to-earnings (P/E) ratio and its calculation.

Assess a firm's asset and fixed-asset turnover ratios to evaluate operational efficiency.

Analyze the impact of financial ratios on a firm's stock market performance and investor perception.

Understand various research methods in public relations and their applicability.

---

Definitions:

Hypothetical Syllogism

A logical argument composed of three categorical propositions, two premises followed by a conclusion, where if the first proposition (if A, then B) and the second proposition (if B, then C) are true, then the conclusion (if A, then C) necessarily follows.

Modus Ponens

A form of deductive reasoning where, from premises in the form "If P, then Q" and "P", one concludes "Q".

Modus Tollens

A logical argument form that infers the denial of an antecedent from the denial of the consequent in a conditional statement.

Hypothetical Syllogism

A form of logical argument where two conditional statements lead to a conclusion if the first condition is true, then the conclusion follows.