An Oil Company Is Trying to Decide If It Will

Multiple Choice

An oil company is trying to decide if it will be worth their money to drill a well in a certain area. They determine that it will cost $125,000 to drill the well. The three possible outcomes of the drilling are a dry well, a "medium" strike that would produce about $700,000, and a big strike that would produce about $1,250,000. The company has estimated that the probability of a "medium" strike is 1/10 and the probability of a big strike is 1/22. What is the oil company's expected value for drilling a well in this area?

A) $31,818.18
B) $1818.18
C) -$126,818.18
D) $116,401.52
E) -$108,636.36