Predict that the discounted price of oil will be higher

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Question: Company C has a drilling prospect Y near Cushing Oklahoma which it must drill now or never. Company D confidently estimates that drilling and completing the well will produce 100,000 barrels of oil at a present value cost of $6 million. The discounted value of a strip of oil futures now is $5.5 million $. The CEO of Company C has information that leads him to confidently predict that the discounted price of oil will be higher than the futures market now indicates and that the oil produced from the oil well will be realize $7 million. What should he do?

Reference no: EM131956756

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