Suppose the Oil Price Is Uncertain and Can Be $60/bbl

question 30

Multiple Choice

Suppose the oil price is uncertain and can be $60/bbl or $30/bbl next year with equal probability, then expected NPV of the project if postponed by one year is: (approximately)

• A) +50 million
• B) -25 million
• C) +59 million
• D) None of the above

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Definitions:

Profit-Maximizing Firms

Companies that operate with the goal of making the highest possible profit given their resources and market conditions.

Market Supply

The total amount of a specific good or service that is available for purchase in a given market at various prices, over a specified period.

Market Demand

The overall amount of a product or service that every consumer in a market is ready and capable of buying at different price levels.

Competitive Market

A commercial system where numerous buyers and sellers exist, preventing any single party from setting the price.