Frodo-neo company is currently evaluating the right to, Ask an Expert

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Frodo-Neo Company is currently evaluating the right to drill for crude oil on a large piece of land in one year. Given the following information and using Black- Scholes model, calculate the maximum bid that the company should be willing to make at the auction

Current market price of crude oil: $93 per barrel

Expected amount of barrels in the land: 435,000 barrel

Extraction cost: $75million

Risk free interest rate:4%

Standard deviation of the returns on the price of crude oil:50%

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92742925

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