Use the Information for the Question(s)below

question 33

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 expected payoff to equity holders with the speculative oil lease deal?

• A)$10 million
• B)$160 million
• C)$275 million
• D)$135 million

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Definitions:

Acceptance Sampling

A method of measuring random samples of lots or batches of products against predetermined standards.

Assignable Variation

Variation in a production process that can be traced to specific causes.

Operating Characteristics

These refer to the performance metrics and behavior of a system under specified conditions.