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Investment I0=PV(I1)=$20 million The present value of investment is assumed to be $20 million regardless of when investment is made. Price of oil (Uncertain) P=$15
Investment I0=PV(I1)=$20 million 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 (Show your work!) NPV (Invest Today), NPV (Wait 1 Year) \& Compare (OV = Int V + Time V, Which is better
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