An existing well is operating and the price of oil is $45 per barrel. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. The constant cost of extraction is $25 per barrel and the volatility of prices is 15.0%. If it costs nothing to shut down the well, at what price would we close the well?
A) $12
B) $25
C) $37
D) $49

Question

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The Answer of An existing well is operating and the price of oil is $45 per barrel. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. The constant cost of extraction is $25 per barrel and the volatility of prices is 15.0%. If it costs nothing to shut down the well, at what price would we close the well?
A) $12
B) $25
C) $37
D) $49

An Existing Well Is Operating and the Price of Oil