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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:

  1. Based only on the base case scenario and the two alternative down-side possibilities, is this investment economically attractive?
  2. What benefit can Monte Carlo simulation add to Dingledine’s understanding of the economic benefits of the Bailey prospect?
  3. 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.
  4. What does the Monte Carlo analysis reveal? What is the probability that the NPV will be greater than zero? Should Dingledine or Ostberg invest?
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