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Determine the best expected profit

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Reference no: EM132834125

An oil company has an oil rights to drill a site to find oil.

If the company drills the site and find a large amount of oil, the estimated incremental profit is $1000K. If the company drills the site and find a moderate amount of oil, the estimated incremental profit is $750K.If the company drills the site and find a small amount of oil, the estimated incremental profit is $500K.

However, the company would have to pay $246.1K in drilling costs. The incremental profit values are before subtraction of the $246.1K drilling cost.

The company believes that the probability getting of large, moderate, small, and no oils are 20%,20%,20%, and 40% respectively.

Instead of drilling itself, the company can sell the oil rights to other company and get net profit of $180K.

Determine the BEST Expected Profit (in thousands of dollars/$K).

Reference no: EM132834125

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