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You own a producing oil well.  If you do nothing, enough oil will “ooze” out of the...

You own a producing oil well.  If you do nothing, enough oil will “ooze” out of the ground in two years for you to sell for $10,000.  However, if you decide today to buy a pump for $1600, you will be able to pump the oil out of the ground in one year and sell it for $10,000.  After either scenario, nothing will be left and the pump will have no salvage value.  Should you buy the pump?  Why or Why Not?

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0 10000 Scenario Year 1 Do Nothing 2 Buy a pump 1-2 Cash Flow -1600 1600 0 10000 - 10000 10000 IRR 25.00% So, if the cost of

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