Problem 1 Chevron Corporation is planning operating an oil fracking project with a Canadian company...
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Problem 1 Chevron Corporation is planning operating an oil fracking project with a Canadian company The project will run for the next 10 years with an initial investment of $425,000 and annual operating cost of $90,000 for the next 5 years, and $125,000 in years 6, 7, and 8 while Chevron Corporation plan to spend 50% of the operating cost in year 3 for the last three years of the project. Another alternative project Chevron Corporation is considering is with BP Oil with an initial investment of $1.2 M and annual operating cost of $50,000 for the first 6 years and $65,000 per year for the remaining four years. Chevron also plans to sell some of its equipment used for the fracking at the end of the project life. The salvage value (S) for those equipment which decreases by 11% per year, is estimated by the following equation: s- initial investment x ( 0.11) where n is the project life If both projects are operated at a MARR of 12%, which of the project would you advise Chevron Corporation to invest their money. Please ensure you draw the Cash flow diagram for the two Alternatives
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