Petroleum Inc

Multiple Choice

Petroleum Inc. (PI) controls offshore oil leases. It is considering the construction of a deep-sea oil rig at a cost of $500 million. The price of oil is $100/bbl. and extraction costs are $50/bbl. PI expects prices and costs to remain constant. The rig will produce an estimated 1,200,000 bbl. per year forever. The risk-free rate is 10 percent per year, which is also the cost of capital. (Ignore taxes) . Calculate the NPV to invest today.

A) +100,000,000
B) +80,000,000
C) +60,000,000
D) +40,000,000