An existing well is operating and 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 it costs nothing to shut down the well, at what price would we close the well?
A) $41
B) $48
C) $52
D) $59
A
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What will be an ideal response?
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Indicate whether the statement is true or false.
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