Mr. Sinha has to decide whether or not to drill a well on his farm. In...

 

Transcribed Image Text:

Mr. Sinha has to decide whether or not to drill a well on his farm. In his village, only 40% of the wells drilled were successful at 200 feet of depth. Some of the farmers who did not get water at 200 feet drilled further up to 250 feet but only 20% struck water at 250 feet. Cost of drillings is Rs. 50/- per foot. Mr. Sinha estimated that he would pay Rs. 18000/- during a 5-year period in the present value terms, if he continues to buy water from the neighbour rather than go for the well which would have life of 5 years. Mr. Sinha has three decisions to make: (a) Should he drill up to 200 feet? (b) If no water is found at 200 feet, should he drill up to 250 feet? (c) Should he continue to buy water from his neighbour? Draw up an appropriate decision tree and determine its optimal decision. Mr. Sinha has to decide whether or not to drill a well on his farm. In his village, only 40% of the wells drilled were successful at 200 feet of depth. Some of the farmers who did not get water at 200 feet drilled further up to 250 feet but only 20% struck water at 250 feet. Cost of drillings is Rs. 50/- per foot. Mr. Sinha estimated that he would pay Rs. 18000/- during a 5-year period in the present value terms, if he continues to buy water from the neighbour rather than go for the well which would have life of 5 years. Mr. Sinha has three decisions to make: (a) Should he drill up to 200 feet? (b) If no water is found at 200 feet, should he drill up to 250 feet? (c) Should he continue to buy water from his neighbour? Draw up an appropriate decision tree and determine its optimal decision.