Wyatt Oil Is Considering Drilling a New Oil Well That

question 60

Multiple Choice

Wyatt Oil is considering drilling a new oil well that is initially expected to produce oil at a rate of 10 million barrels per year.Wyatt has a long-term contract that allows them to sell the oil at a profit of $2.50 per barrel.The cost of the drilling rig is $175,000,000.If the rate of oil production from the rig declines by 3% over the year and the discount rate is 9% per year (EAR) ,then using continuous compounding,the NPV of this new oil well is closest to:

• A)-$333,333,000.
• B)$28,128,000.
• C)$33,333,000.
• D)$39,340,000.

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