Problem: A company is drilling a series of new wells. About 20% of the new holes will be dry. Even if they strike oil there is uncertainty about the amount of oil produced. 40% of new wells only produce a 1000 barrels a day; 60% produce 5000 barrels a day forecast the annual cash revenues from a new perimeter well. Use a future price of $15.00 per barrel an employee proposes to discount the cash flows of the new wells at 30% to offset the risk of dry holes. The company has a normal cost of capital of 10%. Does this make? If so explain.