Oilco must determine whether or not to drill for oil in the South China Sea. It costs $90,000 to drill for oil. If oil is found, the revenue is estimated to be $700,000. At present, Oilco believes there is a 40% chance that the field contains oil. Before drilling, Oilco can hire (for $20,000) a geologist to obtain more information about the likelihood that the field will contain oil. There is a 70% chance that the geologist will issue a favorable report and a 30% chance of an unfavorable report. Given a favorable report, there is an 60% chance that the field contains oil. Given an unfavorable report, there is a 10% chance that the field contains oil. Determine the optimal strategy, the expected profit, EVSI and EVPI.

What is the expected profit? (20 pts)

Select one:

a. Expected profit = $180,000

b. Expected profit = $211,000

c. Expected profit = $111,000

d. Expected profit = $147,000