An oil and gas exploration firm invested $2,400,000 in drilling for natural gas in a new gas field. The firm's geologist believes the field has the potential to produce gas for 25 years. The revenue resulting from the gas well the first year after drilling is $740,000; based on previous experiences with similar types of wells, it is expected the annual revenue will decrease at an annual rate of 1%. Likewise, the costs of operating the well the first year totals $160,000; costs are expected to increase at an annual rate of 3%. Based on a 25-year planning horizon and a MARR of 20%, what is the firm's external rate of return for the investment? Click here to access the TVM Factor Table calculator. %

An oil and gas exploration firm invested $2,400,000 in drilling for natural gas in a new gas field. The firm's geologist believes the field has the potential to produce gas for 25 years. The revenue resulting from the gas well the first year after drilling is $740,000; based on previous experiences with similar types of wells, it is expected the annual revenue will decrease at an annual rate of 1%. Likewise, the costs of operating the well the first year totals $160,000; costs are expected to increase at an annual rate of 3%. Based on a 25-year planning horizon and a MARR of 20%, what is the firm's external rate of return for the investment? Click here to access the TVM Factor Table calculator. %

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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