Determine whether high or low reserves are present

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Reference no: EM131010489

You are given a 50 percent probability that oil reserves (discounted revenues) are 80 million dollars and a 50 percent probability that oil reserves are 60 million dollars. It costs 50 million dollars to drill. Once a well is drilled, all drilling costs are non-recoverable, but it only costs 2 million dollars to test, before drilling. Further, tests will determine whether high or low reserves are present. What is your strategy?

Reference no: EM131010489

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