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You are a manager of a rm like Oasis Petroleum. an explorer and developer ofshale oil in the Williston Elasin. You own a drilling rig
You are a manager of a rm like Oasis Petroleum. an explorer and developer ofshale oil in the Williston Elasin. You own a drilling rig that you purchased for $1 0 million. The life ofa drilling rig is 10 years, and your accountants use straightline depreciation. It's the start of the year, and the current market value of the rig is $6 million, so you can sell it to another driller for $5 million. If you sell the rig, you can use the funds in an investment that returns a prot of8 percent Alternatively, you can rent the rig to another developer for this year for $1 .1 million. At the end of the year. the rig will be worth $5.5 million. The depreciation allowance is equal to $ 1,000,000'. If your rm uses the rig. your opportunity cost will be \".5
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