The price of oil is $115 per barrel.The effective lease rate and risk free rate are 3.0% and 4.0%,respectively.The constant cost of extraction is $85 per barrel and the volatility of prices is 15.0%.If an untapped well costs $2,100 to open and can produce indefinitely,what is the value of the unopened well?
A) $724
B) $854
C) $913
D) $1,025
Correct Answer:
Verified
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