Your firm's geologists have discovered a small oil field in New York's Westchester County

First we calculate Discount Rate using CAPM:

Discount Rate = Risk-free Rate + Beta*(Market Rate of Return - Risk-free Rate)

= 2% + 1.25*(10%-2%)

= 2% + 1.25*8% 

= 2% + 10%

Discount Rate = 12%

Question 28

The cash flows are forecasted to continue forever, with no expected growth or decline?

Present Value = Cash Flows / Discount Rate

= $3,000,000/12%

Present Value = $25,000,000

Question 29

The cashflows are forecasted to continue for 20 years only, with no expected growth or decline during that period?

Present Value = Annual Cash Flows * PVIF @12% for 20 Years 

= $3,000,000*7.469444

Present Value = $22,408,330.87

Question 30

The cashflows are forecasted to continue forever, increasing by 2% per year because of inflation?

Present Value = Cash Flows/(Discount Rate - Growth Rate)

= $3,000,000/(12%-2%)

= $3,000,000/10%

Present Value = $30,000,000

Question 31

The cash flows are forecasted to continue for 20 years only, increasing by 2% per year because of inflation?

Present Value = Cash Flow* (((1+r)^n-(1+g)^n)/((1+r)^n*(r-g))
 

= $3,000,000*(((1+12%)^20-(1+2%)^20)/((1+12%)^20*(12%-2%))

= $3,000,000*8.459566

Present Value = $25,378,699.21