Problem
The Red River oil field will become less productive each year. Rojas Brothers is a small company that owns Red River, which is eligible for percentage depletion. Red River costs $2.5M to acquire, and it will be produced over 15 years. Initial production costs are $4 per barrel, and the wellhead value is $10 per barrel. The first year's production is 90,000 barrels, which will decrease by 6000 barrels per year.
(a) Compute the annual depletion (each year may be cost-based or percentage-based).
(b) What is the PW at i = 12% of the depletion schedule?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.