Texas Petroleum Company is a producer of crude oil that is considering two drillingprojects with the following profit outcomes and associated probabilities:Drilling Project, AProfit-$300,000100,000500,000600,000Probability(percent)10602010Drilling Project, BProfit-$600,000100,000300,0001,000,000The manager's attitude toward risk is as follows:Profit ($'000)-600-300100U(II)0.000.050.20Note: U(II) stands for utility index of profit.3000.305000.45Probability(percent)152540206000.551,0001.00In making decision under risk, which project will be chosen by the manager of TexasPetroleum Company based on his behaviour toward risk? Also describe the manager'sways of handling decision-making associate with risk. Justify your answers usingnumerical explanation.

There are two projects, and one project needs to be chosen. Apart from this, the utility indexes…

Answered: Texas Petroleum Company is a producer…

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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Ruka construction Company is considering bidding on a contract for a new office building complex. First company manger must decide whether to bid on the contract or not. The cost of preparing the bid is $20,000. The company has a 0.75 probability of winning the contract if it submits a bid. If the company wins the bid, it will have to pay $1,500,000 to become a partner in the project. The company will then consider doing a market research study to forecast demand prior to beginning construction. The cost of this study is $100,000. The possible outcomes of the market research study show there is 45% for high interest and 35% for moderate and 20% for low interest for office building. The manager of the company regardless of the result of market study or even without doing market study should decide whether to build the complex or to sell the rights in the project to another developer. If company decides to build the complex, cost of building will be $10,000,000. Based on market study…
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