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A company is drilling a series of new wells. About 20% of the new holes will be dry. Even if they strike oil there is uncertainty about the amount of oil produced. 40% of new wells only produce a 1000 barrels a day; 60% produce 5000 barrels a day

forecast the annual cash revenues from a new perimeter well. Use a future price of \$15.00 per barrel

an employee proposes to discount the cash flows of the new wells at 30% to offset the risk of dry holes. The company has a normal cost of capital of 10%. Does this make? If so explain

https://brainmass.com/economics/uncertainty/opportunity-cost-of-capital-268794

#### Solution Preview

A company is drilling a series of new wells. About 20% of the new holes will be dry. Even if they strike oil there is uncertainty about the amount of oil produced. 40% of new wells only produce a1000 barrels a day; 60% produce 5000 barrels a day

forecast the annual cash revenues from a new perimeter well. Use a future oil price of \$15 per barrel.

First, you need to calculate the ...

#### Solution Summary

This solution is comprised of a detailed explanation to forecast the annual cash revenues from a new perimeter well.

\$2.49