NMTeX Oil owns several gas wells in Carlsbad, NM. Revenue from the wells has been increasing according to an arithmetic gradient for the past 5 years. The revenue in year 1 from well no. 24 was $390,000 and it increased by $15,000 each year thereafter. Determine (a) the revenue in year 3, and (b) the equivalent annual worth of the revenue through year 5. Assume an interest rate of 10% per year.
What will be an ideal response?
(a) Revenue = 390,000 + 2(15,000)
= $420,000
(b) A = 390,000 + 15,000(A/G,10%,5)
= 390,000 + 15,000(1.8101)
= $417,151.50
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