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ivanzaharov [21]
3 years ago
9

Land in the Marcellus Shale natural gas play is currently leasing for $10,000 per acre. 100 acres are needed in order to drill f

or natural gas. Leases last for three years, and if no drilling occurs within those three years then the land goes back on the market. In other words, if a lease is signed in Year 0, then the company holding the lease must drill and complete a well in Year 0, Year 1 or Year 2. If this does not happen then the lease expires at the end of Year 2 and that parcel of land can be re-leased.
The cost to drill and complete a well is $5 million, incurred entirely in the year in which the well is drilled. There are no other operating costs to extract natural gas other than the drilling and completion. Currently (in Year 0), the present value of the revenues from the gas well are $3 million. Each year, there is a 40% probability that the present value of revenues will go up to $8 million for a well drilled in that year, and a 60% probability that the present value of revenues will be $3 million for a well drilled in that year.

Calculate the value of a 100 acre parcel of land in the current year (Year 0). Remember that leasing in Year 0 gives you the option to drill in Year 0, Year 1 or Year 2. Also remember that to calculate the value of the land you need to make a comparison with a scenario where you lease the land in Year 0 and are committed to drilling in Year 0. Does land appear to be over-priced, under-priced, or priced correctly? Please use a 10% discount rate per year.

Business
1 answer:
WARRIOR [948]3 years ago
7 0

Answer:

You can find your answer in attached document.

Explanation:

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amid [387]

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DR Cash $589  

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<em>(To record sales via credit card)</em>

<u>Working</u>

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3 years ago
To get into a foreign service pathway what qualities/skills do you need??
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The link is very good to explain what you need but something it forgot was needing to know about foreign pathways
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Simora [160]
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4 0
2 years ago
The pricing function is an integral part of the companies :
ozzi

Answer:

Yes

Explanation:

Pricing plays an essential role for a product and organisation. At a very basic level, an organisation exists to make profit. A price must cover the cost of a good sold.

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8 0
3 years ago
which of the following items is qualitative?-cost of a new machine-depreciation of existing machine-book value of the existing m
trapecia [35]

Answer: Statement D

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In the given problem cost of machine at which it is purchased is its value, Depreciation is the value of original cost which has been used and amount at which the machine used can be sold is its value.

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6 0
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