A large multinational oil company is considering its strategy in the North See. The UKgovernment has announced that a new drilling site in the North Sea will be offered for sale on acompetitive tender basis, the site going to the company making the highest bid. Provisionalexploration of the site indicates that, over its life, it can be expected to generate revenue ofaround £1,500 million if the oil reserves turn out to be high, but only £500 million if they turnout to be low. Seismic tests have indicated that the probability of high reserves is 0.60. If thecompany is successful in its bid, it will also have to decide whether to construct a new oil rig forthe site or to move an existing oil rig which is currently operating at an uneconomic site. Thecosts of the new rig are around £250 million and for moving the existing rig around £100 million.A new rig would be able to boost production by £150 million if reserve levels turned out to behigh. The company has decided that if it is to bid for the site, the maximum bid it can afford atpresent, because of its cash flow situation, is £750 million. In the past, 70 percent of thecompany's bids for such sites have been successful. However, the company is also underpressure to refurbish some of its existing rigs for both efficiency and safety reasons. The £750million could be used for this purpose instead. If the money is used for refurbishment, there is a50 percent chance of increasing efficiency to generate a return on the £750 million of 5 percent,and a 50 percent chance of generating a return of 10 percent. If the decision to refurbish takesplace after the bid has been made and failed, another £500 million will be required forrefurbishment.a) Construct a decision tree for this problem.

A decision tree helps to analyze various alternatives available in a graphical/diagrammatical manner…

Answered: company's bids for such sites have been…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Refer to exercise 2(a). The estimated cost to complete the house by contractors is (choose the best answer): $348,000 B $334,080 $320,160 $299,280 E
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Fort Wayne Plastics Inc is trying to develop a plan for its workforce and production levels for the six-month period from January to June. The firm produces plastic components. Forecast demands over the next six months are 1,304, 633, 809, 1,175, 2,146, and 1,373. There are currently (end of December) 347 workers employed in the plant. Ending inventory in December is expected to be 461 units, and the firm would like to have 575 units on hand at the end of June. The cost of hiring one worker is $546. The cost of firing a worker is $900. The cost of holding one unit of inventory for one month is $60. In the past, the plant manager observed that over 21 working days, with the workforce level constant at 76 workers, the firm produced 233 plastic components. The number of working days per month from January to June for this year is 26, 25, 25, 17, 22, 17. Find the optimal production per month as well as the corresponding optimal cost for this plan. P1 Number P2= Number P3 Number P4 Number…
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Below are instructions for Wilson hotel Michael Wilson entered into a new business, hotel ownership, by buying a small 24 room hotel and café. The hotel is located in a remote area of Minnesota that is popular for tourists. Michael has hired you for advice. Michael hired a young couple to run the hotel and café on a daily basis and plans to pay them a monthly salary. They will live for free in a small apartment adjacent to the office. The couple will be responsible for hiring and supervising five part-time personnel who will help with cleaning the rooms, cooking, waiting on customers in the café. The couple will maintain records of rooms rented, meals served, and payments received. They will also make weekly deposits. Mike is concerned about his lack of control over the records and operations. Mike lives 5 hours away and will only be able to make periodic visits. Mike trusts the couple but wonders if it makes sense to place so much trust in employees. Mike needs your help to identify…
Answer for type B
What is the future value of $50,000.00 invested this year @ 5%, for 15 years?
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