Please help with the following problem.
One day a representative of a natural gas company comes to your home and expresses interest in obtaining the mineral rights (including natural gas) to your 1,000-acre homestead. They offer you a flat fee of $10,000 plus and additional $50,000 if they discover gas. You have the option of drilling yourself for a cost of $15,000. If you discover natural gas, you estimate that you can sell the mineral rights for $150,000. The probability of finding gas is estimated to be 0.60 for both you and the gas company. Your production/drilling costs are estimated to be $25,000.
Determine the expected monetary value of leasing versus drilling. Show your calculations clearly.© BrainMass Inc. brainmass.com October 9, 2019, 7:58 pm ad1c9bdddf
Determine the expected monetary value of leasing versus drilling. Show your calculations clearly.
Flat fees = $10,000
The solution determines the expected monetary value of leasing versus drilling. Step by step calculations are provided for each.