12.6. Assume that the futures closing prices on the New York Mercantile Exchange at the end of August 2002 specify that futures prices per barrel for light sweet crude oil delivered monthly from mid-

October 2002 through mid-December 2004 are, respectively, $21.56, $21.08, $20.63, $20.23,

$19.88, $19.55, $19.26, $19.00, $18.76, $18.58,

$18.41, $18.25, $18.09, $17.93, $17.83, $17.77,

$17.71, $17.66, $17.61, $17.56, $17.52, $17.48,

$17.46, $17.46, $17.46, $17.47, and $17.48.

Compute the August 27, 2002, value of an oil well that produces 1000 barrels of light sweet crude oil per month for the months October 2002 through December 2004, after which the well will be dry.

Assume that there are no options to increase or decrease production and that the cost of producing each barrel of oil and shipping it to market is

$2.00 per barrel. Also assume that the risk-free return is 5 percent per year, compounded annually.