You are considering buying an oil field. If you buy the field you can extract the oil in one year. There are 100 barrels of oil that can be extracted…

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You are considering buying an oil field. If you buy the field you can extract the oil in one year. There are 100 barrels of oil that can be extracted from this field; the cost of doing so is $4,000. You expect the price of oil in one year to be $50/barrel. If your discount rate is 15%, how much are you willing to pay for the field? Assume you are going to drill in one year no matter what the price of the oil turns out to be. Ignore real options.

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