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An oil drilling company is considering purchase of mineral rights on a property for

Rs.100 lakh. The price includes tests to indicate whether property has type A

geological formation or type B geological formation. The company will be unable to

tell the type of geological formation until the purchase is made. It is known,

howeer, that !0 per cent of the land in this area has type A formation, and "0 per

cent type B formation. If the company decides to drill on land, it will cost Rs.#00lakh. If the company does drill, it may hit an oil well, gas well, or a dry hole. $rilling

e%perience indicates that the probability of striking an oil well is 0.! on type A and

0.1 on type B formation. &robability of hitting gas is 0.# on type A and 0.1 on type B

formation. The estimated discounted cash alue of income from an oil well is

Rs.1,000 lakh and that from a gas well is Rs.'00 lakh. This includes eerything

e%cept cost of mineral rights and cost of drilling. (se decision tree approach and

recommend whether the company should purchase the mineral