Present worth of the anticipated revenue stream

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Reference no: EM131825435

Suppose that an oil well is expected to produce 100,000 barrels of oil during its first year in production. However, its subsequent production is expected to decrease by 10% over the previous year’s productionl. The oil well has proven reserve of 1,000,000 barrels. Suppose that the price of oil is expected to start at $60 per barrel during the first year but it will increase at the rate of 5% over the previous year’s price. What would be the present worth of the anticipated revenue stream at an interest rate of 12% compounded annually over the next 7 years?

Reference no: EM131825435

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