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An oil company is drilling a series of new wells on the perimeter of a producing...

An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 28% of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40% of new wells that strike oil produce only 1,800 barrels a day; 60% produce 5,800 barrels per day.

a. Forecast the annual cash revenues from a new perimeter well. Use a future oil price of $97 per barrel. (Use 365 days a year. Enter your answer in dollars not in millions and round your answer to the nearest whole dollar amount.)

Expected annual cash revenues            $

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Answer #1

We see that the expected annual cash revenues is given as equal to=28%*0+(1-28%)*(40%*1800+60%*5800)*97*365=107064720

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