Module 1 chp 7 problem 37 part a.

Module 1 chp 7 problem 37 part a. - found on the site. If...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
site and the option for future development. This option, if exercised, is worth an additional $1,800,000 to the landowner, but this will occur only if natural gas is discovered during the exploration phase. The landowner, believing that the energy company’s interest in the site is a good indication that gas is present, is tempted to develop the field herself. To do so, she must contract with local experts in natural gas exploration and development. The initial cost for such a contract is $300,000, which is lost forever if no gas is
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: found on the site. If gas is discovered, however, the landowner expects to earn a net profit of $6,000,000. Finally, the landowner estimates the probability of finding gas on this site to be 60%. A. Formulate a payoff table that specifies the landowners payoff (in dollars) associated with each possible decision and each outcome with respect to finding natural gas on the site. 37. A local energy provider offers a landowner $180,000 for the exploration rights to natural gas on a certain...
View Full Document

Ask a homework question - tutors are online