Fred has found some natural gas on his land and is now looki…
Fred has found some natural gas on his land and is now looking to sell the right to drill for this gas. Assume that you are a CFO of a natural gas producer. You have traveled to meet with Fred and he now wants to how much you are willing to pay for this right. As noted below, in addition to the proceeds he will receive from selling this right, Fred will also receive 10% of the revenues from the project. Your company will pay for equipment and all other expenses associated with this project. More details on the proiect: Drilling equipment Expected amount of natural gas to be extracted: Annual maintenance cost Fred's cut Price per mmbtu of natural gas Amount vou already spent traveling to meet Fred Annual Inflation rate Expected life of well Salvage value of Equipment (sell in yr 10 Net working capital needs Tax Rat
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