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Ahmad Oil Refinery, Inc. owns an crude oil pipeline. The current production of oil is at the rate of 100 million barrels a year. The current price of crude oil is about $100 a barrel and is rising at the rate of 5% per year forever. Oil reserves are not going to last forever and the flow of oil will be declining at the rate of 8% per year forever. If the rate of discount rate is 12 percent, what is the present value of the pipeline’s dollar amount of cash flows if its cash flows are assumed to last forever?

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Category:- Financial Management
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