Sam Owns an Oil Field with a Number of Producing

question 7

Multiple Choice

Sam owns an oil field with a number of producing wells.In the past,he has started and stopped production of these wells as the price of oil fluctuated over time.Assume the government imposes additional requirements on non-producing wells that are still production capable.These requirements are expected to increase the cost of stopping well production by 30 percent.As a result,Sam should be:

• A)keeping all wells open continuously.
• B)closing wells only if he plans to keep them closed permanently.
• C)willing to keep wells operating at a lower level of profitability than he has in the past.
• D)increasing the cost of capital he applies to his well evaluation analysis.
• E)opening wells at a lower p_open price.

---

Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Adjusting Entries

Journal entries made in accounting records at the end of an accounting period to update account balances before preparing financial statements.

Net Income

The residual financial benefit a company experiences after expenses and taxes are subtracted from its income.

Fiscal Year

A 12-month period used for accounting and financial reporting purposes, which may or may not align with the calendar year.