Case 7 Group09.Ppt

5/26/2018 Case 7 Group09.Ppt

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Group: 09Name MBA ID BBA ID Comment

Nasima Khatun 15-638 15-029

Md. Abu Hena Rana 15-762 15-073

Mohammad Nasir Uddin 15-835 15-057


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Case Summary

The ProjectDescription

TheFinancialProjection

World BankInvolvement

FinalDecision


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Economy Analysis


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Industry Analysis


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Company Analysis:

Huge Difference inInflation Rate

ComplicatedBusiness

Environment

High Demand inLocal Market

Low QualitySubstitute Product

Lack of controlover financials

Largeattribution tocost of

concentration

Brand Image

High QualityProduct

Strength

Weakness

ThreatOpportunities


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Risk Analysis


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Problem statement

1.Whether to approve funding for the $4 billionChad-Cameroon Petroleum Development andPipeline Project.

2. How risky the project is, considering thecountrys social and political risk.

3.Whether the project will contribute tostimulate the economy of Chad.

4. Whether the project will contribute in theeconomy of Cameroon.

Who istaking

Decision

????????

WB & IFC

About

What ???


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Chad Perspective

NPV

IRR

MIRR

Required Rate of Return

Inflation

Real RiskFree Rate

CountryRisk &

Other Risk

Base Case

Worst Case

Best Case

ay to DecisionMaking


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Analysis of the Problem

Country RiskRisks % Riskiness

Political Risk Rating 36% Very High Risk

Economic Risk Rating 34% Very High Risk

Financial Risk Rating 30.0% Very High Risk

Risks % Riskiness

Political Risk Rating 53% High Risk

Economic Risk Rating 40% Very High Risk

Financial Risk Rating 34.0% Very High Risk

Composite

Risk 34%

Composite

Risk 45%

Very High

Risk

Very High

Risk


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Required Rate of Return

Required Rate Of Return:

Real Risk Free Rate 3.50%

Inflation 4%

Country Risk 5% Very High Risk

Business Risk 0.50% Low Risk

Other Risk 1%

Risk Adjusted Required Rate of Return 14%


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Real Option to Expand

Option Pricing Calculator

S $75.6 Cur rent Asset Value

X 70.3224 Exercise (Stri ke) Pr ice

T 15.00 Time to Matur ity (Years)

rf 5.50% Riskless I nterest Rate (% p.a.)

SD 0.03844 Volatil ity (% p.a.)

d1 6.0975

d2 5.9487

N(d1) 1.0000

N(d2) 1.0000

CE 45 European Call Value ($)


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NAS


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Decision 1: Profitability & Viability of Project

Base CaseAssumptions

Tax Rate 20%

Required Rate of Return 14.00%

Depletion(% of Operating Cost) 30%

CNWC(% of TR) 3%

Salvage Value(% of Investment) 15%

NPV 139.833

Add: Real Option 45

NPV with Real Option 184.5652

IRR 14.61%

MIRR 11.88%


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Riskiness of the Project

Forecast: NPV with Real Option

Statistic Forecast values

Trials 100,000

Base Case 206.12

Mean 208.77

Median 205.98

Mode '---

Standard Deviation 105.37

Variance 11,103.41

Skewness 0.1417

Kurtosis 2.85

Co eff. of Variability 0.4047

Minimum -197.77

Maximum 638.08

Mean Std. Error 0.33


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Sensitivity


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Worst Case:

Assumptions

Tax Rate 20%


Amortization(% of Operating Cost) 30%

CNWC(% of TR) 3%


Volume Decreased by 10%

Price Per barrel Decreased by 10%NPV -419.372

Add: Real Option 45

NPV with Real Option -374.64

IRR 8.18%

MIRR 9.79%


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Best Case:Assumptions

Tax Rate 20%


Amortization(% of Operating Cost) 30%

CNWC(% of TR) 3%


Volume Increased by 10%

Price Per barrel Increased by 10%

NPV 757.9017

Add: Real Option 45


IRR 16.60%

MIRR 11.93%


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Decision 1:Project

Scenario Probabilities NPV IRR MIRR

Worst Case 20% -374.639817 8.18% 9.79%

Base Case 50% 184.5652491 14.61% 11.88%

Best Case 30% 802.6340064 16.60% 11.63%

Expected NPV 258.1448631

Expected IRR 13.92%

Expected MIRR 11.39%

D i i 2 Ch d P ti C t ib ti t th


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Decision 2: Chad Perspective, Contribution to the

Economy

Base Case:

Assumptions

Tax Rate 20%


Depletion(% of Operating Cost) 30%

CNWC(% of TR) 3%


Share of Real Option Value 16%

NPV 330.339775

Add: Real Option 7


NPV 330.339775

Add: Real Option 7



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Riskiness of the Project:

Forecast: NPV with Real

Option

Statistic Forecast values

Trials 100,000

Base Case 340.95

Mean 341.53

Median 340.94

Mode '---

Standard Deviation 19.23

Variance 369.64

Skewness 0.1375

Kurtosis 2.43

Coeff. of Variability 0.0563

Minimum 297.42

Maximum 392.04

Mean Std. Error 0.06


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Summary

Project

Expected NPV 258.1448631 CV

Expected IRR 13.92% 0.4047

Moderate RiskExpected MIRR 11.39%

Chad Perspective



Very Low RiskExpected MIRR 18.85%

Cameroon Perspective



Very Low RiskExpected MIRR 14.07%

Decision 1

Decision 2

Decision 3


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Recommendation

WB & IFC should approve funding for the $4 billion Chad-Cameroon Petroleum Development and Pipeline Project and

ensure Revenue Management Plan Program (PRM).

Chads

Earnings

10%Used to finance povertyreduction programs for

future generations

90%

85%

used to finance development

programs in five high-priority sectors

15%

would go to the governmentbudget and programs in the

Doba region.


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Case 7 Group09.Ppt

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