One of the biggest man-made environmental catastrophe in American History- millions of gallons of oil flowing unchecked into the Gulf of Mexico from an undersea well. In response to this tragedy, British Petroleum (BP) will make payments into a fund to pay for some of the damages to the Gulf Coast resulting from their massive oil spill in April and following months of 2010. BP will pay $3 billion at the end of the third quarter of 2010 and another $2 billion in the fourth quarter of 2010. BP will then make payments of $1.25 billion each quarter thereafter until a total of $ 20 billion has been paid into the fund. If the opportunity cost of capital (interest rate) is 3% per quarter, what is the equivalent value of this payment stream at the beginning of the third quarter of 2010?

1) An oil company is drilling a series of new wells that are adjacent to an existing oil field. About 20% of the new wells will be dry holes and will produce zero oil. If the wells do, in fact, strike oil, they have different expected values. Well One is expected to produce oil worth $5 million per year for 10 years if it strikes oil. The well will cost $10 million apiece to drill. This is depreciable over the life of the project. It requires an investment of $2 million in Net Working Capital, which you will get back in the end. There are $1 million in expenses each year on maintenance and other operating expenses. There is no salvage value. The Beta for a producing well is 0.7. The market risk premium is 7.5%, and the risk-free-rate is 3.6%. For simplicity assume there are no taxes and make further assumptions as necessary. a. What is the correct discount rate for cash flows from the developed wells? b. What is the NPV of the cash flows from the well if you are guaranteed to strike…

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $85 million on equipment with an assumed life of 5 years and an assumed salvage value of $25 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $70 million. A new modem pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $23 million per year and decrease operating costs by $11 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm’s tax rate is 30% and the discount rate for projects of this sort is 10%.   Required: a. What is the net cash flow at time 0 if the old equipment is replaced? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What are the…

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $115 million on equipment with an assumed life of 5 years and an assumed salvage value of $15 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $25 million per year and decrease operating costs by $10 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 30% and the discount rate for projects of this sort is 10%. Required: a. What is the net cash flow at time O if the old equipment is replaced? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What are…