You are considering drilling an oil exploration well on a structure with two possible oil-bearing reservoirs. One possible reservoir is called the "Shallow reservoir". This lies above the second possible reservoir which is called the \"Deep" reservoir. The exploration well could be drilled to test only the Shallow reservoir. However, you also have the option to drill further to test the Deep reservoir. You have estimated the data shown below for the well. Data Cost of well to drill the Shallow reservoir only. $20MM Extra cost to drill further to the Deep reservoir. $10MM NPV if only the Shallow reservoir is a discovery (excluding well costs) $100M M NPV if only the Deep reservoir is a discovery (excluding well costs) $200M M NPV if both reservoirs are discoveries (excluding well costs) $400M M Probability of success for the Shallow reservoir 40% Probability of success for the Deep reservoir if the Shallow reservoir is a discovery 30% Probability of success for the Deep reservoir if the Shallow reservoir is dry 10% 3.1 Draw a decision tree for this decision, solve it and then answer the questions below. 3.2 Should the well be drilled to the possible Shallow reservoir? Why? 3.3 If a discovery is made in the Shallow reservoir, should the well be drilled to the possible Deep reservoir? Why? 3.4 If no discovery is made in the Shallow reservoir, should the well be drilled to the possible Deep reservoir? Why? 3.5 What is the value of the right to drill both reservoirs? Why? 3.6 Suppose that you negotiated a transaction in which you give up a percentage interest in the results of the well in return for another company paying the full cost of the well. How much interest would you be prepared to give up to ensure that the expected value is the same as it is if you pay to drill the well yourself? Show your detailed workings. 3.7 Give two reasons why it might be better for the other company mentioned in the question above to acquire an interest in the well rather than purchase the interest with cash