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Essay / Research Paper Abstract
A 6 page paper examining the wisdom of a company's purchase of an oil well. The paper assesses the net present value and modified internal rate of return of the project to find it positive and a worthwhile project. Bibliography lists 6 sources.
Page Count:
6 pages (~225 words per page)
File: CC6_KSacctNPVoil.rtf
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Unformatted sample text from the term paper:
wife has made a poor purchase in committing to an oil well that may or may not provide any return. If it returns anything at all, then returns present
a positive net present value (NPV) over 16 years - 15 years of operation plus salvage recovery revenues in year 16. 1. Identify the problem: Identify the challenges presented in
the case and address your comments to a particular problem. A minor problem is Mr. Jones negative outlook...
The primary reason Mr. Jones is so out of sorts is that his wife has been making investments that Mr. Jones says returns a negative net present value
(NPV). One author states that "an organisation should grab and hold on to every opportunity (both external and internal) that creates positive net present value (NPV) for its shareholders"
(Capital budgeting needs vision, 2003; p. 1), but closer inspection reveals that the statement may not be true. Lefley (1997) asks whether MIRR might replace IRR in the future;
an investment website states that "using the IRR could result in a positive NPV (good project), but it could turn out to be a bad project (NPV is negative) if
the MIRR were used. As a result, using MIRR versus IRR better reflects the value of a project" (Modified Internal Rate Of Return - MIRR, n.d.). 2. Possible Solutions
These other measures - IRR and MIRR - can be used as well, but NPV alone provides sufficient information as to the quality of
Mrs. Jones oil well investment. Mr. Jones is certain the project carries a negative NPV, but as Table 2 demonstrates such is not the case.
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