Answer question please Let us suppose that ABC paid $500,000,000 for the right...
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Let us suppose that ABC paid $500,000,000 for the right to explore in the successful tender and that substantial economically recoverable reserves have been found, should the ABC start drilling or should ABC forego the opportunity? Consider the following data: 2,000,000 barrels per day for a project life of five years (5 years of production) with no depletion in the five years of production Average long-term price of crude petroleum is estimated to be $55/barrel but the operational cost to extract per barrel are $45/barrel on a cash basis including payments to the host government in taxes and royalties The weighted cost of capital for ABC is 7%. Opportunity cost is estimated at 3% and technical risk is estimated at 10% In addition to the $500,000,000 mentioned above, ABC corporation will have to set up an oil derrick that costs $1,500,000,000. To get the derrick operational will require one year (during which time production is zero)
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