BRITISH PETROLEUM

British Petroleum

British Petroleum

Introduction

BP Plc, originally British Petroleum is a company with head quarters in UK. It operates in the energy sector and especially of oil and natural gas in which it is one of the four major global players. BP originates from the first merger in 1998 of British Petroleum with Amoco to form BP Amoco. Now the company's name is simply "BP." The change emphasizes the new international society, both to avoid a conspicuous link to the UK that could be a hindrance to business in certain regions of the world.

Estimates of the required rate of return on equity

Capital Asset Pricing Model

Capital Asset Pricing Model (CAPM)

Risk free rate (Rf)

7.00%

Beta (B)

1.30

Expected return of Market (ERM)

10.50%

Estimated required rate of return (RR)

11.55%

The Standard DCF Model

Discount rate

12%

Year

0

1

2

3

4

Net Cash flow

$ (18,133.00)

$ 8,339.00

$ 8,197.00

$ 3,562.00

2,590.00

Discount Factor

1

1.12

1.2544

1.404928

1.57351936

Discounted CF

$(18,133.00)

$7,446

$8,197

$3,562

$2,590

Investment Measures

NPV =

($686.83)

IRR =

12.09%

The rates of return play an important role in determining the value. In many cases, these rates are measures of value. There are various definitions of rate of return: The following is a review of these definitions, most of which will be familiar to people with financial literacy. The list is fairly complete, to avoid any doubt when referring to the rates of return in the following chapters. There are only the main concepts without emphasizing certain variations in its calculation (such as those relating to the frequency of payments: annual, semiannual or monthly) that will be discussed later.

Much less clear for most small investors is what we mean by rate of return required. The required rate of return is the estimated opportunity cost that the investor has committed to capital investment. This opportunity cost is a personal opinion and subjective and thus varies if the person making that investment carries some risk.

Empirical evidence shows a direct relationship between risk and return. This implies that ...