Question: A company owns a lease granting it the right to explore oil on certain property. It may sell the lease for $75,000, or it may drill for oil. The four possible drilling outcomes are listed below, together with probabilities of occurrence and dollar consequences:

Possible Outcome Probability consequences ($thousands)

Dry well 0.16 ---$ 500

Gas well only 0.40 250

Combination 0.24 500

Oil well 0.20 1,000

Draw a decision tree for this problem and compute the expected monetary value for the act “drill.” Should the company drill or sell the lease