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Given: Investment I 0 = PV(I 1 ) = $20M The present value of investment is assumed to be $20 million regardless of when investment
Given:
Investment I0 = PV(I1) = $20M
The present value of investment is assumed to be $20 million regardless of when investment is made.
- Price of oil (Uncertain)
- P = $15 or $25 with equal probability
- Variable production cost V = $8 per barrel
- E[production] = Q = 200,000 barrels/year
- Discount rate I = 10%
- Calculate:
- NPV (invest today), NPV (wait 1 year), & compare
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Investment Science
Authors: David G. Luenberger
1st Edition
0195108094, 978-0195108095
