Question 3Shamrock Oil owns a parcel of land that has the potential to be an underground oil field. It will cost$500,000 to drill for oil field. If oil does exist on the land, Shamrock will realize a payoff of$4,000,000(not including drilling costs). With current information, Shamrock estimates that there is a0.2 probability that oil is present on the site. Shamrock also has the option of selling the land as is for$400, 000, without further information about the likelihood of oil being present. A third option is toperform geological tests at the site, which would cost $100,000. There is a 30% chance that the testresults will be positive, after which Shamrock can sell the land for $650,000 or drill the land, with a0.05 probability that oil exists. Using a decision tree, recommend a course of action for Shamrock Oil.

Decision tree as the name stated, it helps to make decisions based on the probability of the…

Answered: Shamrock Oil owns a parcel of land that…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

See similar textbooks

Similar questions

A company is trying to decide if they should make a bid on a project that would generate 450,000 in profit. It will cost $100,000 to develop the bid and they will have a 35% chance of winning the contract. What is the expected net profit (project profit less bid development cost) associated with making the bid?
Your insurance company has a policy to ensure personal property. Assume you have a laptop worth $2,400 and there's a 4% chance that the laptop will be lost or stolen during the next year. What would be a fair premium for the insurance? We are assuming that the insurance company earns no profit
As the number of cars a person owns increases, so does the life expectancy of the person. What is the most likely explanation? Wealth is the common underlying cause Having more cars causes people to live longer. It is a coincidence
United Healthcare is setting plan prices for cancer survivors in the upcoming plan year. It is estimated that 26% of survivors of a particular cancer will redevelop cancer in the next year, and that the treatment will cost about $350,000. United would like to maintain an expected value of $550 per plan; how much do they need to charge each person in order to attain this expected value?
1. ABC inc. stock is currently selling for $30, one year from today the stock price can either increase by 20% or decrease by 15%. The probability of an increase in the stock price is equal to 0.3. The one-year risk-free rate is 5% What is the value of a European put that expires in one year with an exercise price of $24. 2. Graphically, show the value and the profit and loss of the following butterfly position: Long in a call with an exercise price of $30, short in 2 calls with an exercise price of $45, and long in a call with an exercise price of 60. All calls are written on the same stock and have the same maturity. 3. "Early exercise of an American option on a stock that does not pay any dividend is not optimal regardless of whether the option is a Call or a Put". True, False, or Uncertain. Explain.
A cane of length P is to be broken into two parts. What is the probability that one part will have a length of more than double the other? State clearly what assumptions would you have made. Discuss whether you believe these assumptions are realistic and how you might improve them if they are not.
A investor estimates that, in a year’s time, a certain stock has a 30% chance to be worth $125 per share, a 45% chance to be worth $90 per share, and a 25% chance to be worth$60 per share. Determine the expectation of the price per share of the stock in a year’s time.
Solve the following probabilty problem: Doris and her friend plan to travel to Florida during the winter intersession period. Based upon the past experience they know that the probability that they go by car is 0.4 and the probability that they go by plane is 0.2. What is the probability that they travel to Florida by car or plane only?
The Business School at State University currently has three parking lots, each containing 155 spaces. Two hundred faculty members have been assigned to each lot. On a peak day, an average of 70% of all lot 1 parking sticker holders show up, an average of 72% of all lot 2 parking sticker holders show up, and an average of 74% of all lot 3 parking sticker holders show up. a. Given the current situation, estimate the probability that on a peak day, at least one faculty member with a sticker will be unable to find a spot. Assume that the number who show up at each lot is independent of the number who show up at the other two lots. Compare two situations: (1) each person can park only in the lot assigned to him or her, and (2) each person can park in any of the lots (pooling). (Hint: Use the RISKBINOMIAL function.) If needed, round your answer to a whole percentage and if your answer is zero, enter "0". No pooling: Pooling: 51.4 % 83.8 % b. Now suppose the numbers of people who show up at…
Solve the following problems completely. Box and round your final answer up to 4 decimal places. A wallet contains 8 P100 bills, 3 P200 bills, 4 P500 bills, and 2 P1000 bills. You randomly choose 9 bills without replacement. What is the probability that you will choose 2 P200 bills, 1 P1000 bill, 4 P100 bills, and 2 P500 bills?
Suppose an oil company is thinking of buying some land for $10,000,000. There is a 60%60% chance of economic growth and a 40%40% chance of recession. The probability of discovering oil is 44%44% when there is economic growth and 32%32% when there is a recession. If there is economic growth and the oil company discovers oil, the value of the land will triple. If they do not discover oil, the value of the land will decrease by 10%.10%. If there is a recession and the company discovers oil, the value of the land will increase by 50%.50%. If they do not discover oil, the land will decrease in value by 75%.75%. What is the expected value of the investment? Give your answer to the nearest dollar. Avoid rounding within calculations. $$ Select the correct interpretation of the expected value. The expected value represents what the actual investment value will be for this land purchase of $10,000,000. The company should make the investment because the expected value…
An insurance policy on an electrical device pays a benefit of $2400 if the device fails during the first year. The amount of the benefit decreases by $800 each successive year until it reaches 0 . If the device has not failed by the beginning of any given year, the probability of failure during that year is 0.29.Find the expected benefit under this policy.

SEE MORE QUESTIONS

Recommended textbooks for you

A First Course in Probability (10th Edition)

Probability

ISBN:

9780134753119

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability

Probability

ISBN:

9780321794772

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability (10th Edition)

Probability

ISBN:

9780134753119

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability

Probability

ISBN:

9780321794772

Author:

Sheldon Ross

Publisher:

PEARSON

SEE MORE TEXTBOOKS