With current information shamrock estimates

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Reference no: EM131199439

Shamrock oil owns a parcel of land that has the potential to be an underground oil field. It will cost 500,000K to drill for oil. If oil does exist on the land, shamrock will realize a payoff of 4,000,000 (not including drill cost). With current information shamrock estimates that there is a 0.2 probability that oil is still present on the site. Shamrock also has the the option of selling land as is for 400,000k without further information about the likihood of oil being present. A third option is to perform a geological test at the site which would cost 100,000k. There is a 30% chance that the test results will be positive after which shamrock can sell the land for 650,000 or drill the land , with a 0.65 probability still exists . If the test results are negative , shamrock can sell the land for 50,000 or drill the land. With a 0.05 probability that oil exists .

Reference no: EM131199439

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