Use the Information for the Question(s)below

question 86

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% 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)$360 million
• B)$275 million
• C)$85 million
• D)$160 million

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Definitions:

Net Profit Margin Ratio

A financial metric that calculates the percentage of net income generated from a company's revenue.

Interest Revenue

Income earned from investments, savings, or credit extended to others, calculated as a percentage of the principal sum.

Gross Profit Percentage

A financial metric that represents the proportion of money left over from revenues after accounting for the cost of goods sold.

Net Profit Margin

A profitability ratio calculated by dividing net income by revenue, expressing how much profit a company makes for every dollar of sales.