What are the chances that the license will be issued

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Reference no: EM13200882

Your company, Sigma Petroleum, has an option to purchase 1 million barrels of crude oil for $50/barrel. You estimate that you will be able to realize $80/barrel after importing and processing the crude oil from an offshore field through FPSO.
Australian government however is deliberating whether to ban the importation of crude oil direct from its offshore site. There is a 50% chance that the license will be issued to you. If you purchase the crude oil but cannot take delivery because the import license has not been issued, you will be required to pay compensation of $10/barrel to Woodside Petroleum Company for cancellation of the contract. Your company has just started business hence paying the penalty would greatly affect its cash flow.

Reference no: EM13200882

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