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Using the attached Given Information, Please Answer the Following: 2. A small oil company considers the continuous pumping of oil from a well as a
Using the attached "Given" Information, Please Answer the Following: 2. A small oil company considers the continuous pumping of oil from a well as a continuous income stream, f (t) = 600e-0.2t in thousands of dollars per year. Suppose that the oil company is planning to sell the well. The company establish its selling price using the 'present value' of this well over the next 10 years. b. If the income can be invested at 10% compounded continuously, what is the estimated selling price of this well?Given: Formula for the Future Value of Continuous Compounding: f(t) = Pert f(t) = Future Value in (t) Years P = Principal Amount e = Constant, Value of 2.7183 r = Rate of Interest t = Time Therefore: f(10) = 600 * e -0.2 * 10 = 600e -2 = 600 * 1/e2 = 600 * 1/(2.7183)2 = 600/7.3891 = 81.20 Total Income Over Next 10 Years = $81.20
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