What is the expected net present value of drilling the well

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There is a 30 percent chance that the amount of oil in a perspective field is 7 million barrels and a 70 percent chance of 14 million barrels. If the actual amount of oil is 7 million barrels then the present value of cash flows from drilling will be $3.5 million. If the amount is 14 million, the present value will be $9.5 million. The cost to drill the well is $4.5 million. What is the expected net present value of drilling the well?

Reference no: EM132500817

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