(Solved): Problem 2 (23 marks in total). The Goferbroke Company owns a tract of land that may contain oil. A c ...

Problem 2 (23 marks in total). The Goferbroke Company owns a tract of land that may contain oil. A consulting geologist has reported that she believes there is one chance in four of oil. Because of this prospect, another oil company has offered to purchase the land for $90,000. However, GoferBroke is considering holding the land in order to drill for oil itself. The cost of drilling is $100,000. If oil is found, the resulted expected revenue will be $800,000, so the company’s expected profit (after deducing the cost of drilling) will be $700,000. A loss of $100,000 (the drilling cost) will be incurred if the land is dry (no oil). The following table summarizes the data. States of