WACC Calculations (Gulf):

Debt Ratio 11%

Equity Ratio 89%
Cost of Debt 13.50%
Tax Rate 50%
After tax cost of debt 7%
Risk Free Rate of Return 11%
Rm 8.80%
Beta 1.15
Cost of Equity 21%
WACC Gulf 20%
 GULF WACC
Cost of debt 13.50%
Weight of debt 11%
Weight of equity 89%
Tax Rate 50%
Risk Free Rate (Yield on Intermediate term bonds) 11%
Market Return (S&P 500) 14.50%
Gulf Beta 1.1500
Cost of equity 15.025%
WACC - GULF 14.11%
 Gulf Valuation - Perpetuity
Assumptions
Tax Rate 50%
Nominal Growth Rate 4%
WACC 14%
FCFF Calculation
Revenues 6503
Less: Costs
Production 911
Wellhead taxes 792
Depriciation Expense 1000
Other operating Expenses 351
EBIT 3449
EBIT*(1-Tax) 1725
Add: Depriciation 1000
Free Cash Flow 2725
Enterprise Value (perpetuity) 26936
Valuation - E&D Program
Value of Exploration and Developement Program 12458
Total Enterprise Value 39393
Less Debt 10836
Equity Value 28557
No. of Oustanding Shares 165.3
Value per share 173
Price offered 70
discount (Premium) on shares 103
Rate of Return 59%
 Gulf Valuation - Perpetuity
Assumptions
Tax Rate 50%
Nominal Growth Rate 4%
WACC 14%
FCFF Calculation
Revenues 6503
Less: Costs
Production 911
Wellhead taxes 792
Depriciation Expense 1000
Other operating Expenses 351
EBIT 3449
EBIT*(1-Tax) 1725
Add: Depriciation 1000
Free Cash Flow 2725
Enterprise Value (perpetuity) 26936
Less Debt 10836
Equity Value 10836
No. of Oustanding Sahres 165.3
Value per share 66
Price offered 70
discount (Premium) on shares -4
Rate of Return -7%
Operating Profit Per Barrrel:
Results of Operations after costs and income taxes 915
income taxes 1933
Operating Profits 2848
Average Reserves 3004
Reserves to production ratio 8
Barrels produced in 8 years 375
Operating Profit Per Barrrel Produced in 1983 8

Operating Profit Per Barrel in 8 years:

Inflation Rate 5%
Operating Profit Per Barrrel Produced in 1983 8
Period 8
Operating Profit Per Barrel in 8 years 5

NPV of Exploration and Development Program:

Total Exploration Cost 1982 2646
Total Exploration Cost 1983 2189
Average Exploration Cost 2418
Barrel produced 375
Operating Profit Total in 8 years 1928
PV of Tax Shelters Exp'd 629.0476190476
PV of Tax Shelters Cap'd 1673
NPV of 1 year of Exploration and Development 1813
Nominal Growth Rate 5%
Discount Rate 20%
NPV Exploration and Development Program 12458
Optimal Bid Price Levels:
Minimum Bid Price Level
Maximum Bid Price at NPV=Zero
Cash Outflow for purchases = Price * No. of Outstanding Shares
At 0 NPV,
Cash Outflow for purcahses = Enterprise Value
Enterprise Value (Equity Value)
No. of Outsatnding Shares
Maximum Bid Price Level
 75

28557
165.3
173