An oil company has the opportunity to extract oil from a reserve in three years with a per barrel profit of $70 per barrel. The current market rate of interest is 4 percent. The present value of this future extraction is about

Question

Quizplus · Accepted Answer

The present value of the future extraction can be calculated using the formula: PV = FV/(1+i)^n, where PV is the present value, FV is the future value, i is the interest rate, and n is the number of years. 
In this case, FV is the profit per barrel which is $70, i is 4%, and n is 3 years. So, PV = 70/(1+0.04)^3 = $62. Therefore, the present value of the future extraction is about $62. Thus, the best choice is option B.

An Oil Company Has the Opportunity to Extract Oil from a Reserve