A petroleum company is planning to sell a number of existing oil wells. The wells are expected to produce 100,000 barrels of oil per year for 14 more years. If the selling price per barrel of oil is currently 35, how much would you be will to pay for the wells if the price of oil is expected to decrease by $2 per barrel every 3 years, with the first decrease to occur immediately at the end of year 2? Assume that the interest rate is 10 % per year and that oil sales are made at the end of each year.

A petroleum company is planning to sell a number of existing oil wells. The wells are expected to produce 100,000 barrels of oil per year for 14 more years. If the selling price per barrel of oil is currently 35, how much would you be will to pay for the wells if the price of oil is expected to decrease by $2 per barrel every 3 years, with the first decrease to occur immediately at the end of year 2? Assume that the interest rate is 10 % per year and that oil sales are made at the end of each year.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 13EB: Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for...

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