1. 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)

Table 1

Initial Investment	$50 Million to be depreciated over 5 years using straight line method with zero salvage value
Investment Period	5 years
Total Oil Capacity	100 Million barrels, extracting 20 Million barrels each year
Cost of Extraction per barrel	$25
Forward Price of oil in next 5 years	$30 with constant 5% increase each year
Tax rate	30%

1. Explain why forward rates are considered reliable estimates to be used in investment analysis.