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What is the minimum probability of success

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Deep Drilling Oil (DDO) has a 20% discounting rate. They have the opportunity to drill at a new site. In order to drill, they must purchase$5 million in new equipment. In a year, they will find out whether the drilling was successful or not. If drilling is successful, it will increase after-tax profits by 4 million per year in perpetuity (starting with the profits received one year from today). If drilling is unsuccessful, it will not affect after tax profits. The equipment purchased for the drilling can be salvaged one year from today for an after-tax value of1 million dollars. Ignore depreciation. What is the minimum probability of success that would make DDO want to take on this project?

Reference no: EM133069432

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