1. Assume the baseline case applies when year 0 is 2022. That is, the NPV of a well in 2022 is $2,500,000. If the modified Hotelling Rule holds, what will the NPV of a well have to be in 2023? Explain how you obtain your answer.

2- Assuming the cost of drilling a well does not change between 2022 and 2023, what will have to happen to the growth rate of the oil price each year after 2022 for the NPV to rise between 2022 and 2023 by the amount you indicated in your answer to question #1 above? Explain how you obtain your answer.

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The modified Hotelling Rule states that the net present value NPV of a nonrenewable resource should ... View the full answer