Question: Please help Wondering about some changes in rock colors in her backyard and after consulting with an engineer in the neighborhood, Mrs. Lucky nds out

Please help

Please help Wondering about some changes in rock colors in her backyard

Wondering about some changes in rock colors in her backyard and after consulting with an engineer in the neighborhood, Mrs. Lucky nds out that she has been living on an oil reserve with 30,000 barrels of recoverable oil! The news could not come in a better time as Lucky's farming business was not going well because of bad weather and flooding in the past of couple years. Lucky consults with a few oil drilling companies to liquidify the asset as soon as she can. There are two offers on the table: 1. Given the total amount of crude oil reserve in Luckst backyard, a company will produce 6000 barrels a year for ve years and will split it by the ratio of 50-50 between Lucky and the company. 2. The second company offers that it will produce 4000 barrel a year and Lucky will pay $100,000 per year for the cost of a small drilling rig and another $150,000 per year for the cost of labour. Assume the oil reserve will be depleted completely, interest rate is 5 percent, inflation rate 2 percent, and oil sells at $120 per barrel for the entire period. Which business plan will be more profitable? Show your work

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!