How should this proposal bepresented to the company board of directors who understand and make it a policy to evaluate by discounted-cash-flow rate of return?

An oil company is offered a lease of a group of oil wells on which the primaryreserves are close to exhaustion. The major condition of the purchase is that the oilcompany must agree to undertake a water-flood project at the end of five years tomake possible secondary recovery. No immediate payment by the oil company is required. The relevant cash flows have been estimated as follows:

Year

   
0 1-4 5 6-20 Discounted-cash-flow rate of return Net present worth at 10%
0 $50 ,000 -$650,000 $100,000 ? $227,000

Should the lease-and-flood arrangement be accepted? How should this proposal bepresented to the company board of directors who understand and make it a policy to evaluate by discounted-cash-flow rate of return?

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