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The estimated gas reserves of a firm amount to 1 2 million barrels, and the estimated cost of extracting the gas is $ 1 3
The estimated gas reserves of a firm amount to million barrels, and the estimated cost of extracting the gas is $ million. The current price of gas is $ per cubic feet cf and the average production cost is estimated to be $ per cubic feet. The company has the rights to these reserves for the next years, and the year bond rate is The company would need of its reserves each year to meet cash flow needs. The annualized standard deviation in the price of gas is What is the value of the Option?
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