Revised Shockley, Chapter 13 Problems:
Problem 1:
Expected Production (Tril. BTU):
17,588
Expected Spot price/MMBTU:
$0.757515
$0.75*(1.005)2
Problem 2:
Expected Production (Tril. BTU):
17,588
Expected Spot price/MMBTU:
$0.686814
$0.68*(1.005)2
Sales Revenue (000):
$12,079.685
Variable Cost (000):
$4,397
Operating Margin (000):
$7,682.685
Fixed Costs (000):
$5,000
Real Depreciation (000):
$4,712.980
$5,000 ÷ (1.03)2
Before Tax Income (000):
-$2,030.295
Taxes (000):
-$669.997
Net Income (000):
-$1,360.298
Add Back Depreciation (000):
$4,712.980
Real tax Credit (000):
$17,573.079
$1.06*17,588 ÷ (1.03)2
Net Yearly cash Flow (000):
$20,925.761
Problem 3:
Year Operational:
Value of Tax Credit (000):
1995
$111,959.33
1996
$102,272.79
1997
1998
1999
2000
2001
2002
Sales Revenue (000):
$13,323.174
Variable Cost (000):
$4,397
Operating Margin (000):
$8,926.174
Fixed Costs (000):
$5,000
Real Depreciation (000):
$4,712.980
$5,000 ÷ (1.03)2
Before Tax Income (000):
-$786.806
Taxes (000):
-$259.646
Net Income (000):
-$527.160
Add Back Depreciation (000):
$4,712.980
Real tax Credit (000):
$17,573.079
$1.06*17,588 ÷ (1.03)2
Net Yearly cash Flow (000):
$21,758.899
Problem 4:
Dec–94
Dec–95
Dec–96
Dec–97
Dec–98
Dec–99
Dec–00
Dec–01
Dec–02
Dec–03
Dec–04
0.68
0.83
1.22
1.24
1.51
1.85
2.26
2.76
3.37
4.11
5.02
0.56
0.68
0.83
1.22
1.24
1.51
1.85
2.26
2.76
3.37
0.46
0.56
0.68
0.83
1.22
1.24
1.51
1.85
2.26
0.37
0.46
0.56
0.68
0.83
1.22
1.24
1.51
0.31
0.37
0.46
0.56
0.68
0.83
1.22
0.25
0.31
0.37
0.46
0.56
0.68
0.20
0.25
0.31
0.37
0.46
0.17
0.20
0.25
0.31
0.14
0.17
0.20
0.11
0.14
0.09
Problem 5:
Problem 6: (Some small rounding error may occur)
Problem 7:
Dec–94
Dec–95
Dec–96
Dec–97
Dec–98
Dec–99
Dec–00
Dec–01
Dec–02
Dec–03
Dec–04
0.7500
0.9630
1.2365
1.5877
2.0385
2.6175
3.3609
4.3154
5.5409
7.1145
9.1351
0.5841
0.7500
0.9630
1.2365
1.5877
2.0385
2.6175
3.3609
4.3154
5.5409
0.4549
0.5841
0.7500
0.9630
1.2365
1.5877
2.0385
2.6175
3.3609
0.3543
0.4549
0.5841
0.7500
0.9630
1.2365
1.5877
2.0385
0.2759
0.3543
0.4549
0.5841
0.7500
0.9630
1.2365
0.2149
0.2759
0.3543
0.4549
0.5841
0.7500
0.1673
0.2149
0.2759
0.3543
0.4549
0.1303
0.1673
0.2149
0.2759
0.1015
0.1303
0.1673
0.0790
0.1015
0.0616
Problem 8:
Price (Dec-04):
DCF Value (000):
Option Value (000):
9.1351
$1,213,266.18
$1,063,266.18
Problem 9:
Price (Dec-03):
DCF Value (000):
Option Value (000):
7.1145
$ 945,662.73
$ 795,662.73
4.3154
$ 556,629.16
$ 406,629.16
2.6175
$ 320,646.13
$ 170,646.13
1.5877
$ 177,519.13
$ 36,035.71
0.9630
$ 90,695.06
0.5841
$ 38,033.55
0.3543
$ 6,094.75
0.2149
$ (13,279.79)
0.1303
$ (25,037.95)
Problem 10:
U = 1.2840 and D = 0.7788, P(U) = 0.4778
Dec–94
Dec–95
Dec–96
Dec–97
Dec–98
Dec–99
Dec–00
Dec–01
Dec–02
Dec–03
Dec–04
0.6800
0.8731
1.1211
1.4395
1.8483
2.3732
3.0472
3.9126
5.0238
6.4505
8.2825
0.5296
0.6800
0.8731
1.1211
1.4395
1.8483
3.0472
3.9126
5.0238
0.4124
0.5296
0.6800
0.8731
1.1211
1.4395
1.8483
2.3732
3.0472
0.3212
0.4124
0.5296
0.6800
0.8731
1.1211
1.4395
1.8483
0.2502
0.3212
0.4124
0.5296
0.6800
0.8731
1.1211
0.1948
0.2502
0.3212
0.4124
0.5296
0.6800
0.1517
0.1948
0.2502
0.3212
0.4124
0.1182
0.1517
0.1948
0.2502
0.0920
0.1182
0.1517
0.0717
0.0920
0.0558
December-04 Option Values
Price (Dec-04):
DCF Value (000):
Option Value (000):
8.2825
$ 1,094,767.37
$ 944,767.37
5.0238
$ 641,856.18
$ 491,856.18
5.5409
$ 713,725.45
$ 563,725.45
3.3609
$ 410,737.64
$ 260,737.64
2.0385
$ 226,943.57
$ 76,943.57
1.2365
$ 115,477.41
0.7500
$ 47,861.09
0.4549
$ 6,846.55
0.2759
$ (18,031.81)
0.1673
$ (33,125.60)
0.1015
$ (42,270.83)
0.0616
$ (47,816.34)
December-03 Option Values
Price (Dec-03):
DCF Value (000):
Option Value (000):
6.4505
$ 853,376.53
$ 703,376.53
3.9126
$ 500,645.90
$ 350,645.90
2.3732
$ 286,692.04
$ 136,692.04
1.4395
$ 156,921.52
$ 23,655.16
0.8731
$ 78,200.29
0.5296
$ 30,458.86
0.3212
$ 1,494.34
0.1948
$ (16,073.40)
0.1182
$ (26,719.67)
0.0717
$ (33,182.48)
3.0472
$ 217,137.97
1.8483
$ 50,508.57
1.1211
0.6800
0.4124
0.2502
0.1517
0.0920
0.0558