Wyatt oil is considering drilling a new oil well that is initially expected to produce oil at a rate of 10 million barrels per year.Wyatt has a long-term contract that allows them to sell the oil at a profit of $2.50 per barrel.The cost of drilling the rig is $175,000,000.If the rate of oil production from the rig declines by 3% over the year and the discount rate is 9% per year (EAR),then using continuous compounding,the NPV of this new oil well is closest to:
A) -$333,333,000
B) $28,128,000
C) $33,333,000
D) $39,340,000

Question

Quizplus · Accepted Answer

D) r_cc = ln(1 + .09) = .086178 g_cc = ln(1 - .03) = -0.030459 NPV = -175,000,000 + 11ea7e60_158c_559c_ba34_2d9ed21bd4b1_TB1624_11 = 39,339,837

Wyatt Oil Is Considering Drilling a New Oil Well That