# Question: 1 How much money would you make if there were

1. How much money would you make if there were no costs of extraction? Would this be enough to retire?

2. Would you indeed lose money if you leased and extracted immediately? How much money?

3. Continue the scenario analysis by computing the future net payoff implied by each of the future prices of oil. To do this, multiply the price of oil by the number of barrels, then subtract the cost of extraction. If this is negative, you simply won’t develop the field, so change negative values to zero. (At this point, do not subtract the lease cost, because we are assuming that it has already been paid).

4. Find the average future net payoff, less the cost of the lease. How much, on average, would you gain (or lose) by leasing this oil field?

5. How risky is this proposition?

6. Should you lease or not?

2. Would you indeed lose money if you leased and extracted immediately? How much money?

3. Continue the scenario analysis by computing the future net payoff implied by each of the future prices of oil. To do this, multiply the price of oil by the number of barrels, then subtract the cost of extraction. If this is negative, you simply won’t develop the field, so change negative values to zero. (At this point, do not subtract the lease cost, because we are assuming that it has already been paid).

4. Find the average future net payoff, less the cost of the lease. How much, on average, would you gain (or lose) by leasing this oil field?

5. How risky is this proposition?

6. Should you lease or not?

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