3-8 What is the maximunn amount that we can bid for an offshore lease if we have a 20% reinvest- ment opportunity rate. Assume annual componding. Do your analysisB FIT Time 0- End of 1 year: Drill exploratory well at cost of $2 MM. End of 1.5 years: Drill delineation well at a cost of $1.5 MM. End of 2.0 years: Drill delineation well at a cost of $1.5 MM. End of 2.5 years: Begin platform construction at a cost of $10 MM. End of 3.0 years: Continue platform construction at a cost of $10 MM. End of 3.5 years: Install pipeline cost $2 MM. End of 4.0 years: Set platform-cost = $1 MM. End of 4.5 years: Drill and complete wills $20 MM. BID Commence production See production schedule. Assume end of period discounting for annual cash flow from production PRODUCTION SCHEDULE Time Years NCF SM Annual Production (Bbl) 1,300,000 1,300,000 1,100,000 667,000 404,000 245,000 150,000 90,000 50,000 33,000 20,000 32,500 32,500 27,50 16,675 10,100 6,125 3,750 2,250 1,250 825 500 7 10 12 13 14 15 End of 15 years: Salvage Value abandonment costs The present value of the production, discounted at 20%, at the beginning of year 5 is $ 983M