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n200080 [17]
3 years ago
6

A landowner in Texas is offered $200,000 for the exploration rights to oil on her land, along with a 25% royalty on the future p

rofits if oil is discovered. The landowner is also tempted to develop the field herself, believing that the interest in her land is a good indication that oil is present. In that case, she will have to contract a local drilling company to drill an exploratory well on her own. The cost for such a well is $750,000, which is lost forever if no oil is found. If oil is discovered, however, the landowner expects to earn future profits of $7,500,000. Finally, the landowner estimates (with the help of her geologist friend) the probability of finding oil on this site to be 70%. What should the landowner do
Business
1 answer:
Shtirlitz [24]3 years ago
4 0

Answer:

b. She should develop herself as the EMV of developing is $1.125 million, which is higher than the EMV of selling.

Explanation:

The probability of discovered oil = 0.25 (25%)

Selling the exploration right= Selling Price + Probability of discovered oil × Royalty% × Future Profit

= $200,000 + 0.25 × 0.25 × $7,500,000 = $668,750

Developing = Probability of finding the oil × Future Profits - Cost of Well

= 0.25 × $7,500,000 - $750,000 = $1,125,000

= $1.125 million

Therefore the EMV for selling the exploration rights is less than the developing, the landowner will develop the site by his own.

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What is the rate at which one currency is converted to another currency called?
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Canadian company Yummy Snacks exports a number of products to consumers in Peru, Chile, and Argentina. According to this informa
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International Trade

Explanation:

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5 0
3 years ago
Which of the following should be included in the acquisition cost of a piece of equipment?
topjm [15]

Answer: All of these choices are correct.

Explanation:

You didn't give the options to the question. The options include:

testing costs prior to placing the equipment into production

transportation costs

installation costs

All of these choices are correct.

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Therefore, based on the explanation, the correct option is All of the choices are correct.

6 0
2 years ago
At the beginning of the year, Sheridan Company had total assets of $845,000 and total liabilities of $600,000. (Treat each item
zlopas [31]

Answer:

A. Stockholders equity at the end is $493,000.

B. Closing total assets is $865,000.

C. Closing liability is $410,000.

Explanation:

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= $845,000 + $177,000

= $1,022,000

Closing liability:

= Opening liability - Decrease in liability

= $600,000 - $71,000

= $529,000

Closing equity:

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= $1,022,000 - $529,000

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B.  Opening equity:

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= $245,000

Closing assets:

= Opening assets + increase in liability - Decrease in equity

= $845,000 + $92,000 - $72,000

= $865,000

C.  Closing liability:

= Opening liability - decrease in assets - increase in equity

= $600,000 - $90,000 - $100,000

= $410,000

6 0
3 years ago
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