Geometric Gradient Problem: The Saudis produce 3.65 Billion barrels of oil a year. Let’s ignore climate...

Geometric Gradient Problem:

The Saudis produce 3.65 Billion barrels of oil a year. Let’s ignore climate change and drone stuff and say that production will increase at 2% per year due to demand from Asia. Also, the current price of $65/barrel is expected to increase by 4 percent a year for 20 years. What is the present worth of the anticipated 20 years revenue stream assuming the interest rate is 8%.

Solutions

Expert Solution

Present value =

$3,951.48 billion

WORKINGS

Year	Production (billion)	Price per barrel	Revenue($ billion)
1	3.723	67.6	251.6748
2	3.79746	70.304	266.9766278
3	3.8734092	73.11616	283.2088068
4	3.950877384	76.0408064	300.4279023
5	4.029894932	79.08243866	318.6939187
6	4.11049283	82.2457362	338.070509
7	4.192702687	85.53556565	358.6251959
8	4.276556741	88.95698828	380.4296078
9	4.362087875	92.51526781	403.559728
10	4.449329633	96.21587852	428.0961595
11	4.538316226	100.0645137	454.124406
12	4.62908255	104.0670942	481.7351698
13	4.721664201	108.229778	511.0246682
14	4.816097485	112.5589691	542.094968
15	4.912419435	117.0613279	575.054342
16	5.010667824	121.743781	610.017646
17	5.11088118	126.6135322	647.1067189
18	5.213098804	131.6780735	686.4508074
19	5.31736078	136.9451964	728.1870165
20	5.423707995	142.4230043	772.4607871

jeff jeffy answered 1 week ago

Next > < Previous

Related Solutions

A country imports 3 billion barrels of crude oil per year and domestically produces another 3...

A country imports 3 billion barrels of crude oil per year and domestically produces another 3 billion barrels of crude oil per year. The world price of crude oil is $90 per barrel. An imposition of a $30 per barrel import fee on crude oil that would involve annual administrative costs of $250 million. Assume that the world price will not change because of the country imposing the import fee, but that the domestic price will increase by $30 per...

2) A country imports 3 billion barrels of crude oil per year and domestically produces another...

2) A country imports 3 billion barrels of crude oil per year and domestically produces another 3 billion barrels of crude oil per year. The world price of crude oil is $90 per barrel. Assuming linear schedules, economists estimate the price elasticity of domestic supply to be 0.25 and the price elasticity of domestic demand to be -0.5 at the current equilibrium. a. Consider the changes in social surplus that would result from imposition of a $30 per barrel import...

A country imports 3 billion barrels of crude oil per year and domestically produces another 3...

A country imports 3 billion barrels of crude oil per year and domestically produces another 3 billion barrels of crude oil per year. The world price of crude oil is $18 per barrel. Assuming linear schedules, economists estimate the price elasticity of domestic supply to be 0.25 and the price elasticity of domestic demand to be − 0.10 in the neighbourhood of the current equilibrium. a. Assuming that the world price of crude oil does not change when the country...

Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its...

Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its first production year However its subsequent production (yield) is expected to decrease by 9% over the previous year's production The oil well has a proven reserve of 10, 50 barrels. (a) Suppose that the price of oil is expected to be $120 per barrel for the next six years. What would be the present worth of the anticipated revenue trim at an interest rate...

Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its...

Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during its first production year. However, its subsequent production (yield) is expected to decrease by 9% over the previous year's production. The oil well has a proven reserve of 10,500,000 barrels. Suppose that the price of oil is expected to be $120 per barrel for the next six years. What would be the present worth of the anticipated revenue trim at an interest rate of 10%...

The Alaskan oil fields, in operation since 1977, had an estimated reserve of 4.9 billion barrels...

The Alaskan oil fields, in operation since 1977, had an estimated reserve of 4.9 billion barrels in 1999. In 2009, the fields had an estimated reserve of 3.5 billion barrels. Assume the rate of depletion is constant. (a) Find a linear equation that relates the amount A, in millions of barrels, of oil left in the fields at any time t, where t is the year. (b) If the trend continues, when will the fields dry out? (c) Interpret the...

Assume the US can produce 30 barrels of oil or 15 tons of wheat, while Canada...

Assume the US can produce 30 barrels of oil or 15 tons of wheat, while Canada can produce 50 barrels of oil OR 20 tons of wheat. What is the opporunity cost ratios (oil to wheat)for each country? If Canada and the US are trading, who will be exporting Oil? What can the importing nation do to encourage oil production (if it chooses)?

You own 15 barrels of oil that you can sell this year or next year and...

You own 15 barrels of oil that you can sell this year or next year and is otherwise worthless. The price of abarrelofoilineachyearisp0 =21−1q0 andp0 =17−1q1 withadiscountfactorof.95andacostof 1 dollars per barrel. Find the optimal extraction plan, the prices in each period and total discounted net revenue. You own 15 barrels of oil that you can sell this year, next year, or the year after next year and is otherwise worthless. The price of a barrel of oil in each year...

An oil producer plans to sell 1 million barrels of crude oil one year from now....

An oil producer plans to sell 1 million barrels of crude oil one year from now. The oil price in one year is normally distributed with the mean of $80 per barrel and the standard deviation of $12 per barrel. What is the probability that the sales revenue is lower than $50 millions A)0.62% B)41.75% C)58.25% D)99.38%

Spain can produce 125 barrels of wine or 250 bottles of olive oil per day. Italy...

Spain can produce 125 barrels of wine or 250 bottles of olive oil per day. Italy can produce 240 barrels of wine or 300 bottles of olive oil per day. Who has the absolute advantage in producing wine? Who has the absolute advantage in producing olive oil? What is Spain's opportunity cost of producing one barrel of wine? What is Spain's opportunity cost of producing one bottle of olive oil? What is Italy's opportunity cost of producing one barrel of...

Subjects