Re: Declining Production in Alaska
Posted: Sun 11 Jun 2017, 16:01:07
"time value of money comes into the equation". Exactly. First, predict the future price of oil is tricky at best. But they could predict the future flow rate thru the pipeline. And remember how rate of return is calculated: with the NET PRESENT VALUE of the revenue stream. Typically reduced by a 10% "discount factor".
IOW revenue generated 10+ years after the revenue stream begins adds very little to the NPV. Thus does very little to increase ROR.
IOW revenue generated 10+ years after the revenue stream begins adds very little to the NPV. Thus does very little to increase ROR.