Business, 12.10.2020 18:01 scully1442

Oilco must determine whether or not to drill for oil in the South China Sea. It costs $100,000, and if oil is found, the value is estimated to be $600,000. At present, Oilco believes there is a 45% chance that the field contains oil. Before drilling, Oilco can hire (for $10.000) a geologist to obtain more information about the likelihood that the field will contain oil. There is a 50% chance of an unfavorable report. Given a favorable report, there is an 80% chance that the field contains oil. Given an unfavorable report, there is a 10% chance that the field contains oil. Required:
Determine Oilco's optimal course of action. Also determine EVSI and EVPI.

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Oilco must determine whether or not to drill for oil in the South China Sea. It costs $100,000, and...