The XYZ Company develops oil wells in unproven territory. • A consulting geologist has reported that...
The XYZ Company develops oil wells in unproven territory • A consulting geologist has reported that there is a one-In-four chance of oil on a particular tract of land. • Drilling for oil on this tract would require an investment of about $190,000 . If the tract containsoll, it is estimated that the net revenue generated would be approximately $900.000 • Another oil company has offered to purchase the tract of land for $90,000 Question a. Should XYZ drill for...
. The XYZ Company develops oil wells in unproven territory. A consulting geologist has reported that there is a one-in-four chance of oil on a particular tract of land. • Drilling for oil on this tract would require an investment of about $100,000 • If the tract contains oil, it is estimated that the net revenue generated would be approximately $900,000. • Another oil company has offered to purchase the tract of land for $90,000 Question: a. Should XYZ drill...
Decision tree (Show formulas) Senior executives of an oil company are trying to decide whether to drill for oil in a particular field. It costs the company $300,000 to drill in the selected field. Company executives believe that if oil is found in this field its estimated value will be $1,800,000. At present, this oil company believes that there is a 48% chance that the selected field actually contains oil. Before drilling, the company can hire a geologist at a...
6. An oil wildcatter owns drilling rights at two widely separated locations. After consulting a geologist, he feels that at each location the odds against discovering oil if a well is drilled are 9 to 1. A well costs $100,000 to drill, and this is a total loss if no oil is found. On the other hand, if oil is discovered, rights to the oil can be sold for $1,600,000. The wildcatter has $100,000 available for drilling expenses. Find the...
Investment Timing Option: Decision-Tree Analysis The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $11 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $5.39 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have...
Investment Timing Option: Decision-Tree Analysis The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $7 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $3.5 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have...
eBook Problem Walk-Through Problem 26-02 Investment Timing Option: Decision-Tree Analysis The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $11 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $5.5 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in...