Answer to Question #70999 in Other Management for abdul
No oil 0.8
It is possible for WLL to hire a firm of international consultants to carry out a complete survey of the site. WLL has used the firm many times before and has made the following estimates:
1. If there really is oil, then there is a 95% chance that the report will be favourable.
2. If there is no oil then there is only a 10% chance that the report will indicate that there is oil.
The following additional information is also provided:
• The cost of drilling is Sh.10 million.
• The value of the benefits if oil is found is Sh.70 million
• The cost of obtaining information is Sh.3 million.
a) Advise the company on whether to acquire additional information from the consultants
b) Compute the value of imperfect information.
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