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An oil well has been operating for four years with the following after tax cash flows: Year 0: -$5 million (drilling cost) . Year 1:

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An oil well has been operating for four years with the following after tax cash flows: Year 0: -$5 million (drilling cost) . Year 1: $1.5 million Year 2: $2 million Year 3: $2 million . Year 4: $1 million Projected cash flows for the end of Year 5 would be -$500,000. Should the well be abandoned? Why or why not? Choose the statement below that best answers this question, based on the material in the lesson O No, because the well has been profitable for the first four years, so it should keep operating. Yes, because if the well is not abandoned then the drilling cost will not be fully recovered O Yes, because the Year 5 cash flow will be negative No, because the well will have paid back the drilling cost at the end of the fifth year

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