MGMT 648 Sprigg Lane
Each group is to prepare a 2 page written analysis of the case. You may also include any additional charts, figures, or spreadsheet printouts as appropriate.
This case is intended as a first opportunity for you to carry out risk analysis using a Monte Carlo simulation. The case requires the use of @Risk to simulate random variables in Excel. To help you along, I have provided you with the exhibits in excel. The last spreadsheet has a cash flow model already built out for the project.
Key questions and concepts that your team should address:
- Based only on the base case scenario and the two alternative down-side possibilities, is this investment economically attractive?
- What benefit can Monte Carlo simulation add to Dingledine’s understanding of the economic benefits of the Bailey prospect?
- Incorporate uncertainties into the spreadsheet using @Risk. Please describe the choices you make for the sources of uncertainty, distributions, and parameters and provide a rationale for your choices. ‘Mentioned in the case’ is a perfectly acceptable rationale where applicable.
- What does the Monte Carlo analysis reveal? What is the probability that the NPV will be greater than zero? Should Dingledine or Ostberg invest?