A Consultancy Calculates That It Can Supply Crude Oil Assaying

question 43

Multiple Choice

A consultancy calculates that it can supply crude oil assaying services to a small oil producer for $120,000 per year for five years. There are some upfront costs the consultancy will require the oil producer to absorb. What is the maximum that these upfront costs could be, if the equivalent annual annuity to the oil company is to be under $150,000, given that the cost of capital is 10%?

• A) $150,000
• B) $128,698
• C) $113,724
• D) $30,000

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Definitions:

Ceiling Price

A legally established maximum price that can be charged for a good or service, intended to protect consumers.

Pure Monopolist

A single seller in a market that sells a product for which there are no close substitutes, controlling the entire supply and influencing price.

Near-Monopoly

A market structure where one company dominates the market to such an extent that it nearly eliminates all competition.

Dominates

A condition or situation where one option is better than another in all aspects or circumstances.