What are we getting if we buy the pump

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Reference no: EM131177117

You own a producing oil well. If you do nothing, 5000 barrels of oil will “ooze” out of the ground in two years. Experts predict the oil can be sold for $100.80/barrel, two years from now. However, if the same 5000 barrels can be extracted in one year, by purchasing an oil pump today for $25,000.00, experts predict it can be sold for $90.00/barrel. Assume, after either scenario, nothing will be left and the pump will have no salvage value.

No discount rate is given.

Question Hints:

What are we getting if we buy the pump?

What are we giving up?

Do we have a discount rate for a NPV calculation?

Can we attempt to calculate an IRR?

If we are able to make the appropriate IRR calculation, what is the interpretation?

Reference no: EM131177117

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What are we getting if we buy the pump : You own a producing oil well. If you do nothing, 5000 barrels of oil will “ooze” out of the ground in two years. Experts predict the oil can be sold for $100.80/barrel, two years from now. What are we getting if we buy the pump? What are we giving up..

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