Question 1026437: Shell has recently signed a sale and purchase agreement (SPA) with XTRA Pty Ltd. to acquire 100 percent interest in TANVA Oilfield in Production License offshore Western Australia for $20 million. At the moment, oil from the field is produced from horizontal wells and processed through a fixed central production facility platform with 50,000 barrels per day capacity. Oil is then transported by pipeline to the floating storage offloading (FSO) facility and loaded to shuttle tankers for North Asian customers. It is crunch time over the next few days as Shell rallies its investors for the green light on the purchase. Assume that the voting power is only limited to a few trusted and institutional shareholders. The decision requires a simple majority of the seven decision-making shareholders. If each is believed to have a 0.35 probability of voting yes on the purchase, what is the probability that the oilfield will be purchased by Shell? Currently each share of Shell is traded for 2.13 USD. After the successful purchase of the oilfield, the stock price of Shell has 0.75 probability of going up next year. However, if the company does not purchase the oilfield, its stock has only 0.15 probability of increasing in value. What is the probability of Shell’s share price going up next year?. As an investor who only invests in companies with greater than 25% probability of share price growth in one year, will you invest in this company? Elaborate your answer.
Answer by ikleyn(52776)   (Show Source):
You can put this solution on YOUR website! .
I just solved this problem under the link
https://www.algebra.com/algebra/homework/Probability-and-statistics/Probability-and-statistics.faq.question.1026419.html in this site.
The answer to the first question was:
The probability of Shell’s share price going up next year is 0.539, under formulated conditions.
It implies that the answer to the second question is "Yes".
Comment from student: Hi Ikleyn, As an investor who only invests in companies with greater than 25% probability
of share price growth in one year, will you invest in this company? Elaborate your answer. Why do you think the answer is YES?
My response: As I just said above, the probability of Shell’s share price going up next year is 0.539, under given conditions.
The probability 0.539 is 53.9%, which is more than 25%.
That is why.
Thank you for asking.
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