Answer:
The bid amount should be $13,200,264.
Explanation:
An oil and gas producing company owns 42,000 acres of land in a southeastern state.
It operates 630 wells which produce 18,000 barrels of oil per year and 1.7 million cubic feet of natural gas per year.
The revenue from the oil is $1,800,000 per year and for natural gas the annual revenue is $581,000 per year.
Total Annual Revenue
= Revenue from oil + Revenue from gas
= $1,800,000 + $581,000
= $2,381,000
The bid amount should be the present worth of total annual revenue.
Present Worth of total annual revenue
= [tex] Revenue \times\ \frac{( 1 + i )^{n} -1 }{i (1 + i)^{n} }[/tex]
= [tex] $2,381,000\ \times\ \frac{( 1 + 0.11 )^{9} -1 }{0.11 × (1 + 0.11)^{9} }[/tex]
= [tex] $2,381,000\ \times\ \frac{( 1.11 )^{9} -1 }{0.11 × (1.11)^{9} }[/tex]
= [tex] $2,381,000\ \times\ \frac{2.5580 - 1 }{0.11 × 2.5580 }[/tex]
= [tex] $2,381,000\ \times\ \frac{1.5580 }{0.281}[/tex]
= [tex] $2,381,000\ \times\ 5.544[/tex]
= $13,200,264
