Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Firms were buying existing drilling operations in Canadian oil sands regions. These operations would not have been profitable to build from scratch but were profitable

Firms were buying existing drilling operations in Canadian oil sands regions. These operations would not have been profitable to build from scratch but were profitable to operate given that they were already built because, as the columnist said, The key is the distinction between fixed and variable costs. While the fixed investment in new oil sands projects is prohibitive, variable costs can be in the low $20 range per barrel. The columnist estimated that the fixed cost of a new oil sands drilling operation could be $95 per barrel. At the time the column was written, the price of oil was about $50 per barrel. a. Assuming that variable cost of an existing oil sands operation is $20 per barrel and the price of oil is $50 per barrel, how much were the companies selling these drilling operations losing per barrel? b. At a price of $50 per barrel, were the companies buying the existing drilling operations earning a profit of $30 per barrel? If not, explain what information we would need to calculate their profit.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Forensic And Investigative Accounting

Authors: D. Larry Crumbley, Lester E. Heitger, G. Stevenson Smith

7th Edition

0808040731, 9780808040736

More Books

Students also viewed these Accounting questions

Question

What is the confidence level associated with a confidence interval?

Answered: 1 week ago

Question

Describe the concept of corporate social responsibility.

Answered: 1 week ago

Question

Explore the concept of business ethics.

Answered: 1 week ago

Question

Discuss human resource management issues for small businesses.

Answered: 1 week ago