Naturalex Company is a major producer and distributor of natural gas. A natural gas is any gaseous hydrocarbon, consisting chiefly of methane and is used as fuel. It is generated naturally in subterrancan oil deposits. The owners are worried because the economy had began to tighten and that there is an impending recession. In a meeting held recently, the owners are in a dilemma whether to develop a particular exploration site or sell the rights to another company. The manager, Frank Drillon was asked to prepare a decision report and to present the report next week in a language understandable to the owners. Frank knows that a decision made under uncertainty can be very disastrous. The development of the site will be desirable if there are substantial deposits of natural gas. To help determine if the subsurface structures are conductive to natural gas formation, seismie tests can be provide the necessary geological information needed for evaluation. However, in some instances, there is a possibility of natural gas deposits even if the subsurface structures are found not suitable and vice-versa. Thus, there will still be uncertainty following seismie tests. After considerable readings. consultations and evaluations, Frank had acquired and processed the following pieces of information to help him make a decision: a. That the seismic tests would costs PI50,000.00. b. That it will cost PI5 million to develop the site and is expected to yield P40 million in revenues. c. That Naturalex can sell the rights for P3 million without conducting seismie tests. d. That should Naturalex decide to conduct seismie tests and suitable subsurface structures are detected, they can sell the rights for P10 million; but if unsuitable, they can barely be able to sell the rights for P250,000.00 e. That in the absence of seismographie tests, the probability of finding natural gas is 25 per cent. f. That previous experience indicates that 35 per cent of all seismographic tests can detect suitable subsurface structures. g. That the probability of finding natural gas is 85 per cent when the subsurface structures are found suitable; if not, the probability is only 20 per cent. What should Frank Drillon recommend?
Naturalex Company is a major producer and distributor of natural gas. A natural gas is any gaseous hydrocarbon, consisting chiefly of methane and is used as fuel. It is generated naturally in subterrancan oil deposits. The owners are worried because the economy had began to tighten and that there is an impending recession. In a meeting held recently, the owners are in a dilemma whether to develop a particular exploration site or sell the rights to another company. The manager, Frank Drillon was asked to prepare a decision report and to present the report next week in a language understandable to the owners. Frank knows that a decision made under uncertainty can be very disastrous. The development of the site will be desirable if there are substantial deposits of natural gas. To help determine if the subsurface structures are conductive to natural gas formation, seismie tests can be provide the necessary geological information needed for evaluation. However, in some instances, there is a possibility of natural gas deposits even if the subsurface structures are found not suitable and vice-versa. Thus, there will still be uncertainty following seismie tests. After considerable readings. consultations and evaluations, Frank had acquired and processed the following pieces of information to help him make a decision: a. That the seismic tests would costs PI50,000.00. b. That it will cost PI5 million to develop the site and is expected to yield P40 million in revenues. c. That Naturalex can sell the rights for P3 million without conducting seismie tests. d. That should Naturalex decide to conduct seismie tests and suitable subsurface structures are detected, they can sell the rights for P10 million; but if unsuitable, they can barely be able to sell the rights for P250,000.00 e. That in the absence of seismographie tests, the probability of finding natural gas is 25 per cent. f. That previous experience indicates that 35 per cent of all seismographic tests can detect suitable subsurface structures. g. That the probability of finding natural gas is 85 per cent when the subsurface structures are found suitable; if not, the probability is only 20 per cent. What should Frank Drillon recommend?
Practical Management Science
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ISBN:9781337406659
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Transcribed Image Text:Naturalex Company is a major producer and distributor
of natural gas. A natural gas is any gaseous hydrocarbon,
consisting chiefly of methane and is used as fuel. It is
generated naturally in subterranean oil deposits.
The owners are worried because the economy had began
to tighten and that there is an impending recession. In a
meeting held recently, the owners are in a dilemma whether to
develop a particular exploration site or sell the rights to another
company. The manager, Frank Drillon was asked to prepare a
decision report and to present the report next week in a
language understandable to the owners. Frank knows that a
decision made under uncertainty can be very disastrous.
The development of the site will be desirable if there are
substantial deposits of natural gas. To help determine if the
subsurface structures are conductive to natural gas formation,
seismie tests can be provide the necessary geological
information needed for evaluation. However, in some
instances, there is a possibility of natural gas deposits even if
the subsurface structures are found not suitable and vice-versa.
Thus, there will still be uncertainty following seismic tests.
After considerable readings. consultations and
evaluations, Frank had acquired and processed the following
pieces of information to help him make a decision:
a. That the seismic tests would costs P150,000.00.
b. That it will cost P15 million to develop the site and is
expected to yield P40 million in revenues.
c. That Naturalex can sell the rights for P3 million
without conducting seismic tests.
d. That should Naturalex decide to conduct seismic tests
and suitable subsurface structures are detected, they
can sell the rights for P10 million; but if unsuitable,
they can barely be able to sell the rights for
P250,000.00
e. That in the absence of seismographic tests, the
probability of finding natural gas is 25 per cent.
f. That previous experience indicates that 35 per cent of
all seismographic tests can detect suitable subsurface
structures.
g. That the probability of finding natural gas is 85 per
cent when the subsurface structures are found suitable;
if not, the probability is only 20 per cent.
What should Frank Drillon recommend?
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