Changes

:<math>P = \frac{F}{(1 + i)^t}</math>

:<math>P = \frac{F}{(1 + i)^t}</math>

[[File:Rose_time-value-of-money_1.png|thumb|'''Figure 1.''' Comparison of project cash flows and equivalent present value.]]

[[File:Rose_time-value-of-money_1.png|300px|thumb|'''Figure 1.''' Comparison of project cash flows and equivalent present value.]]

 

The present value concept is important in petroleum economics because we need to know how to place a value on cash flows to be received from production in future years. This concept is demonstrated in [[:Image:Rose_time-value-of-money_1.jpg|the figure]]. In oil and gas property evaluation, profit is measured in terms of net cash inflows and net cash outflows. In the figure, the horizontal line represents time, the vertical arrows above the horizontal line represent net cash inflows, and the vertical arrows below the horizontal line represent net cash outflows. The profit is usually measured for increments of one year. One exception is the time 0 profit period. Time 0 is the instant in time when the first significant expenditure is made.

The present value concept is important in petroleum economics because we need to know how to place a value on cash flows to be received from production in future years. This concept is demonstrated in [[:Image:Rose_time-value-of-money_1.jpg|the figure]]. In oil and gas property evaluation, profit is measured in terms of net cash inflows and net cash outflows. In the figure, the horizontal line represents time, the vertical arrows above the horizontal line represent net cash inflows, and the vertical arrows below the horizontal line represent net cash outflows. The profit is usually measured for increments of one year. One exception is the time 0 profit period. Time 0 is the instant in time when the first significant expenditure is made.