Question:

A mining company has gained the drilling rights at two sites A and B. Each cost €100,000 each. Based on past experience they have estimated the chances of a successful drill as follows:

P(A) = 0.6, P(B) = 0.5

If successful, the predicted revenues from each site follow a Normal Distribution with the following parameters

Site A: Mean = 910,000, Std Dev = 370,000*

Site B: Mean = 960,000, Std Dev = 330,000

They know that the average number of accidents on this type of mining site is .5 and follows a Poisson distribution. They estimate that an accident will cost €500,000. Each site will have fixed costs of €400,000.

Using MS EXCEL estimate the

(i) The likelihood of making a profit from the drilling contracts

(ii) Expected value of the drilling contracts to the company. Justify your answer statistically and identify any assumptions you made.

All these values will be supplied in the Assessment Details File.