The Mobile Oil company has recently acquired oil rights to a new potential source of natural oil in Alaska. The current market value of these rights is $90,000. However, if there is natural oil at the site, it is estimated to be worth $800,000; however, the company would have to pay $100,000 in drilling costs to extract the oil. The company believes there is a 0.25 probability that the proposed drilling site actually would hit the natural oil reserve. Alternatively, the company can pay $30,000 to first carry out a seismic survey at the proposed drilling site. Historically, if the seismic survey produces a favorable result, there is a 0.50 chance of hitting oil at the drilling site. However, if the seismic survey produces an unfavorable result, there is only a 0.14285 probability of hitting oil. The probability of an unfavorable seismic survey when no oil is present is 0.80.
a. What is the probability of a favorable seismic survey?
b. What is the probability of an unfavorable seismic survey?
c. Construct a decision tree for this problem.
d. What is the optimal decision strategy suing the EMV criterion?
e. To which financial estimate in the decision tree is the EMV most sensitive?
Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]