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An oil company plans to buy a well that currently produces 25,000 barrels per year. The well is estimated to have a useful life of
An oil company plans to buy a well that currently produces 25,000 barrels per year. The well is estimated to have a useful life of three more years and production will grow by 10% in the first year and the last two years will drop by 5% each. On the other hand, the price of oil is expected to remain stable for the next two years and have an increase of 10% in the third year. The discount rate for this type of project is 5% per year. Additionally, it is known that the well has operating costs of 10% of revenues. If the current price of a barrel of oil is 15, indicate which is the maximum of the following prices for which the company should buy the well.
A. between 998.000 and 996.000 euros
B. 1.500.000 euros
C. 1.060.000 euros
D. between 1.000.000 and 1.200.000 euros
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