Question 3 You friend went back to his engineering books and realized that he forgot to account for the growth rate of the well's production. He adjusted his model, and now he believes that the production of the well will steadily decline at a growth rate (g) of -23%. He sends you the graph below to give you an idea of the well's production over time. [Assume that the well will produce for 50 years.] Well's Annual Production Number of Barrel of Oil 4000 3000 2000 1000 0 0 10 20 Year 30 40 50 Question 3.1. (20 points) Using your friend's prediction of the well's growth, how much oil will the well produce in year 1, 2, 10, and 50? Question 3.2. (10 points) Now, assuming that the well production will grow at a rate of -23%, your friend is offering $280,000. Do you accept his offer? Assume that the bank is offering a saving account with a 6% interest rate compounded annually. Question 3.3. (20 points) Your friend wonders if instead of paying you in one large lump-sum payment, he could pay you in 10 equal annual payments. How much should he offer for you to be indifferent between receiving $280,000 today, and 10 equal annual payments starting today?