Search erences Mailings Review View Help Marimet Singh Beda e Find - Replace A AA EES AaBk AaBbccc Aabbccdd AaBbc AaBbcc ADA A Heading 1 T Normal 1 No Spac... Heading 2 Heading 3 Paragraph Styles Question Four: You are an investment analysis expert working for an investment company and you are offered an oil field investment opportunity. If risk free rate is 5%, using certainty equivalent method, should your company invest in it or not? Explain why or why not. (Refer to table 1 below) Select Editing a. Table 1 Initial Investment Investment Period Total Oil Capacity $50 Million to be depreciated over 5 years using straight line method with zero salvage value 5 years 100 Million barrels, extracting 20 Million barrels each year $25 $30 with constant 5% increase each year 30% Cost of Extraction per barrel Forward Price of oil in next 5 years Tax rate (10 marks) b. Explain why forward rates are considered reliable estimates to be used in investment analysis. (6 marks)