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7: Oil wells in the United States can operate and produce for an average of 20-40 years. Investing in an oil well requires foreseeing risks,
7: Oil wells in the United States can operate and produce for an average of 20-40 years. Investing in an oil well requires foreseeing risks, opportunities, and costs associated with the project investment. Suppose you are an investor and considering investing in a project that will produce for 20 years. The expected annual production capacity is 25,000 barrels. The fixed cost of purchasing equipment, leasing land, drilling the well, and setting up production equipment is $15 million. The marginal cost of producing is $20 / barrel, and you expect the price of oil to be $80 / barrel for the entire lifespan of this rig. The annual interest rate is 10%. Should you invest? If yes, in which year will it start to be profitable? If no, why not
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