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Group Problem 3-9 ConocoPhillips (COP) Natural Gas and Gas Products Department (NG&GP) manages all.. 1 answer below » Group Problem 3-9 ConocoPhillips (COP) Natural Gas and Gas Products Department (NG&GP) manages all of the company’s activities relating to the gathering, purchase, processing, and sale of natural gas and gas liquids. Chris Simpkins, a recent graduate, was recently hired as a financial analyst to support the NG&GP department. One of Chris’s first assignments was to review the projections for a proposed gas purchase project the were made by one of the firm’s field engineers. The cash flow projections for the 10-year project are found in Exhibit P3-9.1 and are based on the following View complete question » Group Problem 3-9 ConocoPhillips (COP) Natural Gas and Gas Products Department (NG&GP) manages all of the company’s activities relating to the gathering, purchase, processing, and sale of natural gas and gas liquids. Chris Simpkins, a recent graduate, was recently hired as a financial analyst to support the NG&GP department. One of Chris’s first assignments was to review the projections for a proposed gas purchase project the were made by one of the firm’s field engineers. The cash flow projections for the 10-year project are found in Exhibit P3-9.1 and are based on the following assumptions and projections: Document Preview: Group Problem 3-9
ConocoPhillips (COP) Natural Gas and Gas Products Department (NG&GP) manages all of the company’s activities relating to the gathering, purchase, processing, and sale of natural gas and gas liquids. Chris Simpkins, a recent graduate, was recently hired as a financial analyst to support the NG&GP department. One of Chris’s first assignments was to review the projections for a proposed gas purchase project the were made by one of the firm’s field engineers. The cash flow projections for the 10-year project are found in Exhibit P3-9.1 and are based on the following assumptions and projections: -The investment required for the project consists of two components: First, there is the cost to lay the natural gas pipeline of $1,200,000. The project is expected to have a 10-year life and is depreciated over seven years using sever-year MACRS. Second, the project will require a $145,000 increase in net working capital that is assumed to be recovered at the termination of the project. -The well is expected to produce 900 MCF (thousand cubic feet) per day of natural gas during Year 1 and then decline over the remaining nine-year period (365 operating days per year). The natural gas production is expected to decline at a rate of 20% per year after Year 1. -In addition to the initial expenditures for the pipeline and additional working capital, two more sets of expenses will be incurred. First, a fee consisting of 50% of the wellhead natural gas market price is $6.00 per MCF, 50% (or $3.00 per MCF) is paid to the producer. Second, gas processing and compression costs of $0.65 per MCF will be incurred. -There is no salvage value for the equipment at the end of the natural gas lease. -The natural gas price at the wellhead is currently $6.00 per MCF. -The cost of capital for this project is 15%. 1) What are the NPV and IRR for the proposed project, based on the forecasts made above? Should Chris recommend that the project be undertaken? Why or why not? What… Attachments: Q-Attachment…..docx Q-Attachment-….docx View less » Jul 30 2015 09:34 AM
