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The Federal Government has just granted us the right to drill test wells in several national parks over the next 5 years. The wells must
The Federal Government has just granted us the right to drill test wells in several national parks over the next 5 years. The wells must be drilled within that time because of recent laws, after which those areas will again be closed. There are wells in 6 areas in which we can drill a single well, and each well's profit varies upon when drilled. Our analysis, including the predicted demand and price of oil, sets the total profit for a well if drilled in the years listed below. In some areas if we delay drilling the wells for another year they will become more valuable, and in some cases they will be worth less, as shown. The profit from a well in each area vs. the year in which drilled is shown below. These values have been discounted (brought back to the present) and are listed in the following table as net present values. Profit in millions $ If Drilled in Year 2 If Drilled in Year 1 60 30 60 40 If Drilled in Year 3 70 30 70 10 40 50 Well A Well B Well C Well D Well E Well F If Drilled in Year 4 60 20 50 80 20 30 If Drilled in Year 5 50 20 30 70 20 30 20 110 70 40 120 60 50 60 In most years our existing equipment will limit us to drilling no more than two wells per year. However, in the 3rd and 5th years some of our drilling operations in other areas will be completed and we can bring in their equipment, allowing us to drill as many as 3 wells during those years. Set up the LP solution for when to drill in which area for this
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