Professional Documents
Culture Documents
Research or
exploration
Research or cost = 100 Annual sales = 250 250
Exploration
Cost = 150 Eq. cost = 200 Annual OC = 90 90
L=0
-1 0 1 ... 5
Assume the escalated dollar minimum DCFROR is 15% and make the following
two analysis :
a. calculate project DCFROR assuming the evaluation is being made prior to
year -1, so none of the project dollar values shown on diagram are sunk.
b. Make DCFROR analysis to determine if project development should
continue, assuming the evaluation is being made after the year -1 costs have
already been incurred (so they are sunk) but prior to incurring the year 0
costs. Assume the year -1 research or explanation costs have generated no
assets of value for sale to outside interests, therefore, no opportunity costs
will be incurred from keeping the property for continued development.