Wyatt Oil Is Considering Drilling a New Self Sustaining Oil

question 41

Multiple Choice

Wyatt oil is considering drilling a new self sustaining oil well at a cost of $1,000,000.This well will produce $100,000 worth of oil during the first year,but as oil is removed from the well the amount of oil produced will decline by 2%,per year forever.If the Wyatt oil's appropriate interest rate is 8%,then the NPV of this oil well is closest to:

• A)-$250,000
• B)$0
• C)$250,000
• D)$1,000,000

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Definitions:

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