Quiz7BKey - OMM 230 Quiz 7B(Key The SHELLY COMPANY owns a...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
OMM 230 Quiz 7B (Key) The SHELLY COMPANY owns a tract of land that may contain oil. A consulting geologist  has reported to management that she believes there is 1 chance in 4 chance (i.e., 25%) of  oil.  Because of this prospect, another oil company has offered to purchase the land for $90.000.  However, SHELLY is considering holding the land in order to drill for oil itself. The cost of  drilling is $100,000. If oil is found, the resulting expected revenue will be $800,000. So the  company’s expected profit (after deducting the cost of drilling) will be $700,000. A loss of  $100,000 (the drilling cost) will be incurred if the land is dry (no oil).The following table  summarizes these data.  Alternatives Payoffs for different status of land (or State of  Nature)                                        Oil Dry Drill for oil
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/15/2011 for the course OSCM 230 taught by Professor Dong during the Spring '08 term at Washington University in St. Louis.

Page1 / 4

Quiz7BKey - OMM 230 Quiz 7B(Key The SHELLY COMPANY owns a...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online