An investment had net cash losses of $5 million and $12 million in the first and second years, respectively, but gained $4 million, $8 million, and $15 million in years three, four, and five, again respectively. The number of years required for cash flow breakeven was closest to: (A) 4.6
(B) 4.5
(C) 4.4
(D) 4.3.
On this problem, NCF is calculated for each year until the accumulated amount is passes from negative to positive. One then iterates to find the exact time. To do this quickly, make a table (below):
Year 1 2 3 4 4.33 5
NCF (5) (12) 4 8 15
Cum (5) (17) (13) (5) 0 10
CBE yr 1 2 3 4 4.33 5
This problem is pretty easy since NCF is given directly and need not be calculated. Cumulative cash flow goes from (5) to 10 in years 4 and 5, respectively. So going 1/3 of the way between 4 and 5 gives about 4.33 This is closest to (D).
In the printed version there is an interest rate mentioned. Wouldn't you have to pay interest until the project is cashflow positive?
ReplyDeleteWhat do you mean the printed version? This problem is only on Kindle.
DeleteSorry I meant "ebook" version.
DeleteIf I remember right on this problem you "invest" and make money. You don't "borrow" or pay interest. Check?
Deleteokay. I will assume no interest unless stated borrowed. thanks for clarification. Just want to make sure don't miss easy ones due to misinterpreting.
DeleteNo worries, I can't tell you how easy it is to get confused doing these problems under time constrains, which is why I make so many problem sets so guys can both practice and then test themselves under pressure. After 4 hrs one covers so many subjects a mistake could happen on anything, even simple stuff.
DeleteAlso, on number 78- it comes out to the same choice either way - is Rw supposed to be .5 or 1? thanks!
ReplyDeleteNot sure what you mean here...could you be more specific?
DeleteProblem 78. A circular gas reservoir is 58 acres. A 6 inch diameter (at the sandface) well penetrates the reservoir’s center. You are certain the well can be fractured or acidized to overcome the naturally high permeability, but the well must have a strong flow rate to unload potential water, and thus the stimulation will have to be exceptional. The best (most negative) theoretical skin possible in this gas well is closest to: (A) -4.5(B) -7.5(C) -10.5(D) -13.5.
Yes. this one. I got -8... using rw of .25 ft since it said diameter of 6 inches. However, using .5 is much closer to -7.5. This tripped me up a little since fekete says can use OD of csg as rw? However, it sounded like uncased so was still thinking .25ft?
Deletehttp://www.fekete.com/SAN/TheoryAndEquations/WellTestTheoryEquations/Wellbore_Radius.htm
So if I get you: you got the right answer, but was just wondering if you should adjust the diameter given because in this case it didn't change anything answer-wise? Is that right?
Deleteyes! thanks
DeleteGot it. I don't adjust; word of warning on these kind of problems don't overthink them just roll with the simple answer if in doubt.
Deleteokay so if given radius or diameter just go with that? Any suggestions on "being able to roll" but also avoiding traps?
DeleteYou did the exact right thing, you ran simple, tried a second equation and it gave you no change, so you covered yourself. If one had given an exact answer, you might have leaned that way, that's how I think.
Delete