You are considering buying an oil field.If you buythe field, you can extract the oil in one
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Question:
You are considering buying an oil field. If you buythe field, you can extract the oil in one year. Thereare 100 barrels of oil that can be extracted from the field; thecost of doing so is $4,000. You expect the price of oilin one year to be $50/barrel. If your discount rate is15%, how much are you willing to pay for the field? Assume that youare going to drill in one year no matter what the price of oilturns out to be- that is, ignore real options.
a. $1,000
b. $869.57
c. $0
d. $-295.44
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