Question
In: Economics
A natural gas well is projected to produce $233,000 in profit during its first year of...
A natural gas well is projected to produce $233,000 in profit during its first year of operation, $228,000 the second year, $223,000 the third year, and so on, continuing this pattern. If the well is expected to produce for a total of 10 years, and the effective annual interest rate is 7.0%, which of the following most closely represents the present worth of the well?
|
$1,498,000 |
|
$1,669,000 |
|
$2,186,000 |
|
$1,924,000 |
Solutions
Expert Solution
| Answer: | ||||
| Year | Profit | PV factor@ 7% | PV | |
| 1 | 233,000.00 | 0.934579439 | 217,757.01 | |
| 2 | 228,000.00 | 0.873438728 | 199,144.03 | |
| 3 | 223,000.00 | 0.816297877 | 182,034.43 | |
| 4 | 218,000.00 | 0.762895212 | 166,311.16 | |
| 5 | 213,000.00 | 0.712986179 | 151,866.06 | |
| 6 | 208,000.00 | 0.666342224 | 138,599.18 | |
| 7 | 203,000.00 | 0.622749742 | 126,418.20 | |
| 8 | 198,000.00 | 0.582009105 | 115,237.80 | |
| 9 | 193,000.00 | 0.543933743 | 104,979.21 | |
| 10 | 188,000.00 | 0.508349292 | 95,569.67 | |
| PW equals | 1,497,916.74 | |||
| Hence, the correct answer is (a) 1,498,000. | ||||
| Please rate my answer well. Thanks in advance. | ||||
Rahul Sunny answered 1 year agoRelated Solutions
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