Calculate the After-Tax Cash Flow, NPV (at minimum ROR=20%) and ROR for the following investment with 6 years life time:
The investor is a Non-integrated petroleum company
Total producible oil in the reserve is estimated to be 2,400,000 barrel
Production rate will be 400,000 barrel of oil per year from year 1 to year 6
Mineral rights acquisition cost for property would be $1,600,000 at time zero
Intangible drilling cost (IDC) is expected to be $7,000,000 at time zero
Tangible equipment cost is $3,000,000 at time zero
Working capital of $1,500,000 also at time zero
Equipment depreciation will be based on MACRS 5-years life depreciation starting from year 1 to year 6 (consider rates exactly similar to the table A-1 for 5-years half-year convention)
The production selling price is assumed $45 per barrel which has 10% escalation each year applicable from year 2
Operating cost is $1,500,000 annually with escalation rate of 10% starting from year 2
Income tax is 40%
Royalty 15%
Note: for depletion cost calculation you can amortize the Mineral rights acquisition cost equally over 6 years.