ppose that an oil well is expected to produce 12, 00,000 tirst production year. However, its subsequent production (yield) is e: decrease by 9% over the previous year's production. The oil wel ven reserve of 10,500,000 barrels. Suppose that the price of oil is expected to be $120 per barrel for the rears. What would be the present worth of the anticipated revenue n interest rate of 10% compounded annually over the next six year uppose that the price of oil is expected to start at $120 per barre e first year, but to increase at the rate of 3% over the previous year hat would be the present worth of the anticipated revenue strea erest rate of 10% compounded annually over the next seven year TO JO
ppose that an oil well is expected to produce 12, 00,000 tirst production year. However, its subsequent production (yield) is e: decrease by 9% over the previous year's production. The oil wel ven reserve of 10,500,000 barrels. Suppose that the price of oil is expected to be $120 per barrel for the rears. What would be the present worth of the anticipated revenue n interest rate of 10% compounded annually over the next six year uppose that the price of oil is expected to start at $120 per barre e first year, but to increase at the rate of 3% over the previous year hat would be the present worth of the anticipated revenue strea erest rate of 10% compounded annually over the next seven year TO JO
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:258 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.
(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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