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In: Economics

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 of 10% compounded annually over the next six years? (b) Suppose that the price of oil is expected to start at $120 per barrel during the first year, but to increase at the rate of 3% over the previous year's price. What would be the present worth of the anticipated revenue stream at an interest rate of 10% compounded annually over the next seven years?

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Present Worth is $ 556916125.44

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Rahul Sunny answered 1 year ago
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