/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q1FSAC. Consolidated Natural Gas Company... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 6: Q1FSAC. (page 311)

Consolidated Natural Gas Company (CNG), with corporate headquarters in Pittsburgh, Pennsylvania, is one of the largest producers, transporters, distributors, and marketers of natural gas in North America.

Periodically, the company experiences a decrease in the value of its gas- and oil-producing properties, and a special charge to income was recorded in order to reduce the carrying value of those assets.

Assume the following information. In 2016, CNG estimated the cash inflows from its oil- and gas-producing properties to be \(375,000 per year. During 2017, the write-downs described above caused the estimate to be decreased to \)275,000 per year. Production costs (cash outflows) associated with all these properties were estimated to be \(125,000 per year in 2016, but this amount was revised to \)155,000 per year in 2017.

Instructions (Assume that all cash flows occur at the end of the year.)

(a) Calculate the present value of net cash flows for 2016鈥�2018 (three years), using the 2016 estimates and a 10% discount factor.

(b) Calculate the present value of net cash flows for 2017鈥�2019 (three years), using the 2017 estimates and a 10% discount factor.

(c) Compare the results using the two estimates. Is information on future cash flows from oil- and gas-producing properties useful, considering that the estimates must be revised each year? Explain.

Short Answer

Expert verified

The NPV for 2016-2018 is $621,712.9977, for 2017-2019 is $271,292.9445 and it provides very useful information regarding the increase and decrease in the value of assets.

Step by step solution

01

Calculation for part A

Year

2016-2018

Cash Inflows

375,000

Production cost

-125,000

Profit (cash flow)

250,000

Present Value of annuity factor (10% 3 years)

2.486851991

NPV

621712.9977

02

Calculation for part B

Year

2017-2019

Cash Inflows

275,000

Production cost

-155,000

Profit (cash flow)

120,000

Present Value of annuity factor (10% 3 years)

2.260774537

NPV

271292.9445

03

Calculation for Part C

The estimate of future cash flow is very useful as it provides the information and understanding of whether the value of gas and oil properties is increasing or decreasing from year to year. It also provides useful information for writing down the asset.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Recently, Glenda Estes was interested in purchasing a Honda Acura. The salesperson indicated that the price of the car was either \(27,600 cash or \)6,900 at the end of each of 5 years. Compute the effective-interest rate to the nearest percent that Glenda would pay if she chooses to make the five annual payments.

Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods. (a) \(30,000 receivable at the end of each period for 8 periods compounded at 12%. (b) \)30,000 payments to be made at the end of each period for 16 periods at 9%. (c) $30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%

The Procter & Gamble Company (P&G)

The financial statements of P&G are presented in Appendix B. The company鈥檚 complete annual report, including the notes to the financial statements, is available online.

Instructions (a) Examining each item in P&G鈥檚 balance sheet, identify those items that require present value, discounting, or interest computations in establishing the amount reported. (The accompanying notes are an additional source for this information.)

(b) (1) What interest rates are disclosed by P&G as being used to compute interest and present values?

(2) Why are there so many different interest rates applied to P&G鈥檚 financial statement elements (assets, liabilities, revenues, and expenses)?

Steve Madison needs $250,000 in 10 years. How much must he invest at the end of each year, at 5% interest, to meet his needs?

Question:Assume the same situation as in Question 11, except that the four equal amounts are deposited at the beginning of the period rather than at the end. In this case, what amount must be deposited at the beginning of each period? (Round to two decimals.)
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Project Planning & Management

Read Explanation

Strategic Analysis

Read Explanation

Family Business

Read Explanation

Human 91影视

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.