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.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 22P
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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.
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