Calculate the expected profit associated with drilling

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Reference no: EM132888568

Question: An Oil Drilling Company has rights to drill at a particular location. After geological investigation it is determined there is a probability of 0.15 of there being an oil-find worth £200m, a probability of 0.25 a find worth £50m and 0.6 that the site contains no oil. Drilling costs are estimated at £45m. They wish to maximize expected profits.

a) Calculate the expected profit associated with drilling

b) Using the 5 Random Numbers from U(0,1) 0.01, 0.89, 0.27, 0.08 and 0.63, conduct 5 trials of a Monte Carlo experiment associated with drilling and calculate an estimate of expected profit

Reference no: EM132888568

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