Wyatt Oil Is Considering Drilling a New Oil Well That

question 23

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:

Accused

An individual who has been charged with a crime or is alleged to have committed a wrongdoing.

Lynch Law

The practice of punishment, often by hanging, carried out by mob action without legal authority, frequently used to control or terrorize African Americans.

Deep South

A term referring to the southernmost region of the United States characterized by its historical dependence on agriculture, particularly cotton, and a history of racial segregation and significant African American population.

Justified

Considered or declared to be right or reasonable under the circumstances, often used in legal, ethical, or moral contexts.