•On the other hand, if the tract does contain oil, the consulting geologist estimates that there

would be eno
•There is another option that another oil company has gotten wind of consulting geologist’s report and so
•Decision that must be taken:
Should Max sell his land or doing drilling?

Approximate profit :
Profit if find oil = Revenue if find oil – Drilling cost
revenue approxiamte $ 800,000
Investment $ 100,000
$800.000 - $100.000 = $700.000

Decision Trees of Goferbroke

No Oil ($100,000)
75%
EMV DRILLING $100
Drill

Oil $700,000
25%
Decision

EMV NO DRILLING $9

Sell Sell Land $90,000

100%

Max Flyer is the founder of and sole owner of the Goferbroke The
that there would be enough there to generate a net revenue of approximately $800,000, :
ologist’s report and so has offered to purchase the tract of land from Max for $90,000. This is very tempting. This too would

EMV DRILLING $100.000

EMV NO DRILLING $90.000

he Goferbroke The company should have made the decision to drill because it can be seen from a
empting. This too would provide a welcome infusion of capital into the company, but without incurring the large risk of a ve

can be seen from a simple analysis that the profits obtained in these conditions if he drills will be
ring the large risk of a very substansial loss of $100,000.

s if he drills will be more profitable.