Reference no: EM1388297
D. Craig Exploration Company has been offered a lease to drill for oil on a particular piece of property. While oil has been found on nearby land, there are no assurances that D. Craig will be successful in finding oil. The company feels that it will strike a major find, an average find, or a dry hole. A major find can be sold to an oil company for $6 million, while an average find will only be sold for $2 million. A dry hole will cost the company $80,000 to cap.
The lease costs $400,000, plus if the oil well is sold to an oil company, then 20% of the revenue goes to the lease. D. Craig estimates that it can drill a well at a cost of $160,000. Without further testing, D. Craig' geologist estimates that there is a 5% chance that the well will be a major find, a 35% chance that it will be an average find, and a 60% chance that it will be a dry hole.
In order to get a better estimate of the probability of finding oil in the well, the geologist is contemplating performing either a geologic or a seismic test. A geologic test will cost $20,000. If the test predicts oil, the geologist believes that the following probabilities hold:
P(test predicts oil | major find) = .70
P(test predicts oil | average find) = .50
P(test predicts oil | dry hole) = .30
Instead of the geologic test, the firm can perform the more detailed seismic test, which costs $50,000. If this test predicts oil, the geologist believes that the following probabilities hold:
P(test predicts oil | major find) = .90
P(test predicts oil | average find) = .70
P(test predicts oil | dry hole) = .10
If D. Craig gets a prediction of oil from either the geologic or seismic tests, it can sell a half-interest in the well to a Dallas investor for $800,000. In this case D. Craig will be responsible for any and all losses on the well should it lose money, but will split profits (excluding cost for conducting tests) on the well equally with the investor if it makes profit.
What is D. Craig' optimal strategy?
|
Mis-communication in statistics
: We often hear you can lie with statistics. This is one way of saying statistics can be easily mis-communicated. Find one example of how statistics are mis-communicated and explain why there was a mis-communication and what you would do to correct ..
|
|
Forensic biology
: Assume you found your sibling's brother-in-law has had a sample submitted to the lab. This is a person you have never met, but that you know has been in trouble with the law.
|
|
Principle that holds that b cannot simply sue a
: what is the name of the principle that holds that B cannot simply sue A for breach, but must first make a reasonable attempt to find someone else to perform as A was supposed to have done?
|
|
Right of hiv patients to compassionate care
: Describe why HIV/AIDs patients are entittlted to the same level of treatment and compassion as all other patients. Include references to course resouces present in proper APA format. About 500 words. Course text Legal Aspect of Health Care Adminst..
|
|
What is d craig optimal strategy
: D. Craig Exploration Company has been offered a lease to drill for oil on a particular piece of property. While oil has been found on nearby land, there are no assurances that D. Craig will be successful in finding oil
|
|
Describe dna test
: Assume your supervisor has found a new test kit that she wants to start using. She has asked you to validate the kit. Please explain some tests that might be needed?
|
|
Negative tests for hypertension
: What is the predictive value of a negative test result? In other words, what is the probability that an individual who returns a negative tests for hypertension is not hypertensive? Please give your answer to 3 decimal places.
|
|
Question about surface areas
: Surface areas are important in biology because it constrain rates of transfer of light, heat, water, gases, food, forces, etc. Discuss and contrast the location, orientation and size of two surface areas.
|
|
Hours required to manufacture units
: It took a contractor 5000 hours to manufacture their first unit of an item. If the contractor expects to achieve a 94% unit learning curve, how many hours would be required to manufacture units 76-100?
|