Question: Use expected value calculation method to evaluate the following business proposition A Texas oil drilling company has determined that it costs $25,000 to sink a

Use expected value calculation method to evaluate the following business proposition

A Texas oil drilling company has determined that it costs $25,000 to sink a test well. If oil is hit, the net revenue for the company will be $475,000 (which is $500,000 gross revenue - $25,000 drilling cost). If natural gas is found, the net revenue will be $125,000 (which is $150,000 gross revenue - $25,000 drilling cost). If the probability of hitting oil is 3.00% and of hitting gas is 6.00%, find the expected value of sinking a test well.

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