Wyatt Oil Is Considering Drilling a New Oil Well That

question 11

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 drilling the 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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Definitions:

CFO's Salary

The compensation awarded to the Chief Financial Officer of an organization, encompassing salary, bonuses, and other financial benefits.

Positively Skewed

Describes a distribution of data where most values are concentrated on the left, with a long tail extending to the right.

Probability

The likelihood of an event's occurrence assessed by a numerical scale extending from 0 to 1.

Sampling Distribution

The distribution of probabilities for a specific statistic derived from a random sample, illustrating the variation of the statistic across different samples.