The XYZ oil company owns several natural gas wells and is negotiating a 15-year contract to sell the gas from these wells to another company. They are negotiating on the price of the gas in the first year, in dollars per thousand cubic feet ($/MCF). including a 5% escalation clause. XYZ expects the wells to produce 50,000 MCF the first year and to decline at the rate of 15% every year thereafter. Operating costs are estimated to be $2.5/MCF and escalate at 4% per year. XYZ has agreed to spend $1.000,000 now to lay pipelines from each well to the second company's processing plant. What should the minimum price be the first year for this to be acceptable to XYZ? Assume an end-of-year convention and an MARR of 15%. O 7.13 O 889 O 8.13 O 9.50
The XYZ oil company owns several natural gas wells and is negotiating a 15-year contract to sell the gas from these wells to another company. They are negotiating on the price of the gas in the first year, in dollars per thousand cubic feet ($/MCF). including a 5% escalation clause. XYZ expects the wells to produce 50,000 MCF the first year and to decline at the rate of 15% every year thereafter. Operating costs are estimated to be $2.5/MCF and escalate at 4% per year. XYZ has agreed to spend $1.000,000 now to lay pipelines from each well to the second company's processing plant. What should the minimum price be the first year for this to be acceptable to XYZ? Assume an end-of-year convention and an MARR of 15%. O 7.13 O 889 O 8.13 O 9.50
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The XYZ oil company owns several natural gas wells and is negotiating a 15-year
contract to sell the gas from these wells to another company. They are negotiating on
the price of the gas in the first year, in dollars per thousand cubic feet ($/MCF),
including a 5% escalation clause. XYZ expects the wells to produce 50,000 MCF the
first year and to decline at the rate of 15% every year thereafter. Operating costs are
estimated to be $2.5/MCF and escalate at 4% per year. XYZ has agreed to spend
$1.000,000 now to lay pipelines from each well to the second company's processing
plant. What should the minimum price be the first year for this to be acceptable to
XYZ? Assume an end-of-year convention and an MARR of 15%.
O 7.13
O 889
O 8.13
O 9.50
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