Use the Information for the Question(s)below

question 27

Multiple Choice

Use the information for the question(s) below.
Wildcat Drilling is an oil and gas exploration company that is currently operating two active oil fields with a market value of $200 million each.Unfortunately,Wildcat Drilling has $500 million in debt coming due at the end of the year.A large oil company has offered Wildcat drilling a highly speculative,but potentially very valuable,oil and gas lease in exchange for one of their active oil fields.If Wildcat accepts the trade,there is a 10% chance that Wildcat will discover a major new oil field that would be worth $1.2 billion,a 15% chance that Wildcat will discover a productive oil field that would be worth $600 million,and a 75% chance that Wildcat will not discover oil at all.
-What is the overall expected payoff to Wildcat from the speculative oil lease deal?

• A)$210 million
• B)$275 million
• C)$85 million
• D)$160 million

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Definitions:

Joint Probabilities

The likelihood of two occurrences taking place simultaneously.

Marginal Probabilities

The probability of a single event occurring, irrespective of the outcomes of other variables.

State Contracts

Agreements entered into by government entities for the procurement of goods and services, subject to specific regulatory and legal frameworks.

Construction Company

A business entity involved in the building of structures, infrastructures, and related activities.