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In: Math
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following...
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following prior probabilities.
| P(high-quality oil) | = | 0.40 |
| P(medium-quality oil) | = | 0.20 |
| P(no oil) | = | 0.40 |
If required, round your answers to two decimal places.
| (a) | What is the probability of finding oil? | ||||||||||||||||||||||||||||||||||||
| (b) | After 200 feet of drilling on the first well, a soil test is taken. The probabilities of finding the particular type of soil identified by the test are as follows. | ||||||||||||||||||||||||||||||||||||
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| How should the firm interpret the soil test? What are the revised probabilities? | |||||||||||||||||||||||||||||||||||||
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| What is the new probability of finding oil? |
Solutions
milcah answered 2 hours agoRelated Solutions
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following...
An oil company purchased an option on land in Alaska.
Preliminary geologic studies assigned the following prior
probabilities. P(high-quality oil) = 0.60 P(medium-quality oil) =
0.20 P(no oil) = 0.20 If required, round your answers to two
decimal places. (a) What is the probability of finding oil? (b)
After 200 feet of drilling on the first well, a soil test is taken.
The probabilities of finding the particular type of soil identified
by the test are as follows. P(soil |...
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following...
An oil company purchased an option on land in Alaska. Preliminary
geologic studies assigned the following prior probabilities.
P(high-quality oil)
=
0.40
P(medium-quality oil)
=
0.20
P(no oil)
=
0.40
If required, round your answers to two decimal places.
(a)
What is the probability of finding oil?
(b)
After 200 feet of drilling on the first well, a soil test is taken.
The probabilities of finding the particular type of soil identified
by the test are as follows.
P(soil |...
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following...
An oil company
purchased an option on land in Alaska. Preliminary geologic studies
assigned the following prior probabilities.
a.
What is the probability of finding oil (to 1 decimal)?
b.
After feet of drilling on the first well, a soil test is taken. The
probabilities of finding the particular type of soil identified by
the test are given below.
Given the soil found
in the test, use Bayes' theorem to compute the following revised
probabilities (to 4 decimals).
What is...
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following...
An oil company purchased an option on land in Alaska.
Preliminary geologic studies assigned the following prior
probabilities:
P(high-quality oil) = .3
P(medium-quality oil) =.5
P(no oil) = .2
a. What is the probability of finding oil (to 1 decimal)?
______
b. After 200 feet of drilling on the first well, a soil test is
taken. The probabilities of finding the particular type of soil
identified by the test are given below:
P(soil/high-quality oil) = 0.3
P(soil/medium-quality oil) = 0.5...
Mobile Oil Company The Mobile Oil company owns land in Alaska that might contain natural oil....
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The Mobile Oil company owns land in Alaska that might contain
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However, if natural oil is present at the site, the oil will be
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Before drilling, the company has an option to carry out a
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An oil company owns some land that is purported to contain oil. The company classifies such...
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The company classifies such land into four categories by the number
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Land category 1: a
500,000 barrel well
Land category 2: a
200,000 barrel well
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The probabilities of each type of well
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The Karns Oil Company is deciding whether to drill for oil on a
tract of land that the company owns. The company estimates the
project would cost $8 million today. Karns estimates that, once
drilled, the oil will generate positive net cash flows of $4
million a year at the end of each of the next 4 years. Although the
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Investment Timing Option: Option Analysis The Karns Oil Company is deciding whether to drill for oil...
Investment Timing Option: Option Analysis
The Karns Oil Company is deciding whether to drill for oil on a
tract of land that the company owns. The company estimates the
project would cost $8 million today. Karns estimates that, once
drilled, the oil will generate positive net cash flows of $4
million a year at the end of each of the next 4 years. Although the
company is fairly confident about its cash flow forecast, in 2
years it will have...
Investment Timing Option: Option Analysis The Karns Oil Company is deciding whether to drill for oil...
Investment
Timing Option: Option Analysis
The Karns Oil Company
is deciding whether to drill for oil on a tract of land that the
company owns. The company estimates the project would cost $8
million today. Karns estimates that, once drilled, the oil will
generate positive net cash flows of $4 million a year at the end of
each of the next 4 years. Although the company is fairly confident
about its cash flow forecast, in 2 years it will have...
Investment Timing Option: Option Analysis The Karns Oil Company is deciding whether to drill for oil...
Investment Timing Option:
Option Analysis The Karns Oil Company is deciding whether to
drill for oil on a tract of land that the company owns. The company
estimates the project would cost $8 million today. Karns estimates
that, once drilled, the oil will generate positive net cash flows
of $4 million a year at the end of each of the next 4 years.
Although the company is fairly confident about its cash flow
forecast, in 2 years it will have...
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