Compute the annual depletion

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The Red River oil field will become less productive each year. Rojas Brothers is a small company that owns Red River, which is eligible for percentage depletion. Red River costs $2.5M to acquire, and it will be produced over 15 years. Initial production costs are $4 per barrel, and the wellhead value is $10 per barrel. The first year's production is 90,000 barrels, which will decrease by 6000 barrels per year.

(a) Compute the annual depletion (each year may be cost-based or percentage-based).

(b) What is the PW at i = 12% of the depletion schedule?

Reference no: EM131809880

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