Quantitative Management

This document discusses quantitative management and risk evaluation for the Ewing natural gas company's projects. It includes an introduction, deterministic case analysis, risk evaluation, recommendations, and conclusions.

Quantitative Management

Table of Contents
Introduction......................................................................................................................................3
Deterministic case............................................................................................................................3
Risk evaluation................................................................................................................................7
Recommendation.............................................................................................................................8
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................12
Table of Figures
Figure 1-analysis beta-PERT distribution ......................................................................................5
Figure 2-under taken project analysis .............................................................................................8
Figure 3-Total probability of the net presented values .................................................................12
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Introduction
The main aim of this project revolves around Ewing natural gas Company, to find the next three
years projects undertaken on balanced risk. The problem is related to the return of investment
portfolio on a big company, for which the excel calculation is used. The headquarters on the
Ewing natural gas company is located in Dalls, Taxes. Cliff is currently meeting all the parties to
explain the proposals of the coming 3 years. He recommends from different functional areas for
projects they want to operate. Each proposal is linked to the schedule of capital expenditure and
financial analysis of the desired revenue streams over the next three years. Each proposal leads to
NPV. Company provides various energy products and annual revenue of nearly $50 billion JRR.
Bayer said that the capital expenditure would be a total of $10 billion for approved projects and
not $4 billion in any one year. Unfortunately, the project’s potential list is more than $10 billion
in capital expenditures, therefore Cliff will know that it does not allow some of these very
definitive projects they can calculate the next three years they can analyze in three ways, that
include, finding the best deterministic base on the investment on cliff to analyze the total
expenditure of the natural gas, Second stages of the process is to identify the risk evaluation of
the capital expenditure on beta-PERT distribution, which is specified as NPV value 15% below
and 30% above the values on the distribution. But, this report intends to find the minimum and
maximum value, however, they can specify 15% above and 20% below the probability
distribution which will be investigated.
Deterministic case
J.R. Bayer said that, for an approved project a total capital expenditure cannot be greater than
$10 billion and greater than $4 billion must be spent every year. Sadly, for a potential list of
projects the capital expenditures is more than $10 billion, thus Cliff is aware that few such
promising projects cannot be given approval and recovery of variable costs of 3 years per barrel
will be a challenge for many, with net profitability and performance cash flows taking a
significant hit on the board. The key to the companies is to protect their insisted cash flows by
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reducing the impact of production and reducing capes. As for our analysis, 80 percent of 230
companies will face this challenge.
In the next 3 years, many companies over $4 billion, nearly 40 percent of companies will face
challenges in financing new projects. Especially, in maintaining the current production positions
and to implement their supply wages from producing the assets, when a ratio of 77 percent
increases, a company is analyzed to include a complete portfolio under-development, and
invested assets. The remaining 23 percent is consistent with 55 / bbl.
Criteria: Recovery and confirmation of oil prices will increase the profits of potential companies
by $10 per liter of petrol; how important are they, and how they can generate more free cash
flows. As far as our analysis is concerned, 62 percent of the companies are backed up to
monetize the potential recovery in oil prices. In fact, at least $10 of these companies, even in the
context of the free cash flow of the capital expenditure.
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1 2 3 4 5 6 7 8 9 10 11 12 13
-200.00
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
Series1 Series2
Figure 1-analysis beta-PERT distribution (Bryfonski, D. (2015)
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Risk evaluation
We distinguish investment risk into legitimate and systemic components. Personal (business
orientation) risk is significant for individual entrepreneurs or entrepreneurs, and through a
portfolio of different portfolio shares. On the other hand, the regulatory (market) risk is
associated with the overall marketplace and cannot be completely eliminated by diversification.
Because they are useful in both sectors, investors have two types of different types of natural
issue that can analyze minimum and maximum beta value on the distribution.
The "random variable" refers to a process of one or more possibilities. Assume, you have a cash
flow linked with new business ventures. Then, list out few things you can do for creating cash
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flow in the future. Explain how they could be regarded as the consequences of circumstances and
random variables. The forecasts of cash flow for a project are utilized for calculating a project's
IRR and NPV. This makes the IRR and NPV random variables. Are they more or less different
than the variables of separate cash flows?
One of the difficulties to use the simulations to consolidate the risk in the capital budget is
associated to the notion which the probability distribution of continuous money is not always
independent. For the first time, the first period’s cash flow is higher in the range of its range, for
instance, in the successive periods are much less than that. Why do you think this is the case in
general?
Ed has presented an idea to the company’s executive committee with a refinancing plan for an
investment of $20 million, a large adoption of IRR and IRR as a capital budget. Everyone in the
group is extremely excited. You are least excited. Edwin asked, reflecting the possibility of
binoculars he had not allowed. Ed said that his business was subtly proud of his business, he
noticed that he had a statistical calculation. He needs a system adoption and requires a couple of
events, where each one contains a probability of ninety eight percent. Two current probability
0.95%, so he lowered his cash flow rate by 4%. He will raise these correct accounts of the
natural gas
$ 50 billion invested on the automatic sewing machine for producing newly designed clothes.
Costumes cost $ 200, and executive years expect $ 4 billion annually. However, there are few
uncertainties related to the cost of production linked with a new machine. Manufacturing sector
estimates that the operating costs are 15% of revenue, but the senior management feels that this
figure is less than 15% or higher than the 30% maximum value. Natural gas will be reduced to $
10 billion per year (straight line, zero back-ups). Keyer's capital expenditure is 20% less and
15% above, with a narrower tax rate of thirty five percent. Evaluate the point estimate with the
best as well as worst conditions for NPV of a project.
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Company FA1 FA2 FA3
0
500
1000
1500
2000
2500
3000
3500
4000
4500
under taking projects
Year 1 Year 2 Year 3
Figure 2-under taken project analysis Bryfonski, D. (2015).
Beta-PERT delivery
The simplest version of program evaluation and research techniques (PERT) is program planning
and testing. This simple method is to reduce the number of ratings required for two first
operational periods at regular PERT. This is accomplished with the use of normal distribution
rather than beta, for hours of operation. Two required time ratings are "mostly" and "hopeless".
The size of the effort required for these changes apply PERT. Simplified PERT durations are
subject to errors of greater than 10% when the skewers of the actual distribution is greater than
The data file’s value must have very high values, each must be at least 15% less than the
minimum and 30% of the maximum value. NPVs should be modeled using beta- distributions,
often using values in the data file. However, their minimum and maximum values may be 20%
less and 15% more. The calculating the beta PERT delivery on the energy product they can find
the total probability of the most likely values on the beta distribution.
Recommendation
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Eighth Natural Gas will consider a real estate development plan that costs $50 billion in a major
energy company and is expected to total $10 billion in total capital costs for projects approved
for $4 billion over a period of three years. Management senses that in case the program works
effectively, then in the very first year the investment might turn out to be $3 million and the
preceding year can have $4 million. Third Year $4billion although things are so bad, on the other
hand (Bryfonski, 2015), 1 million dollars can earn more than 2.5 million revenue. EPing Natural
Gas Cost of Capital 12% if the NPVs for the project is created. Risk and uncertainty in capital
budgets are very inherent. This is due to investment the results and the Capital Budget is today's
actions facing of the future. The future includes uncertainty and danger. The probability of
today's cost is not a prediction some have to be achieved during the future. Both seasonal
fluctuations and business cycles are provided Planning for various project projects. Cost
Capitalize can reduce or decrease the capital that provides cutting rates under the trading cycle.
Inflation and deflation will be subject to investment decision making in the future range The
uncertainty is even tougher and increases the risk range.
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In the previous trouble, Ewing Natural Gas connects the best results with a probability of 0.95,
what is the most viable (expected) NPV of the project?
Suppose the previous issue of Ewing Natural Gas provides the following possibilities at the cost
of production as a percentage of the future (Dijk, 2013).
FA2:
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The AYING natural gas is considered as a three-year plan, the initial source of cash flow (FA1)
$175,000 and 3 cash receipts are defined with an independent probability distribution, which is
represented below. There are thousands of dollar statistics. Ewing natural gas cost of capital is
10%.
Year 1 Year 2 Year 3
Company 4083 2501 2935
FA1 1365 1099 1299
FA2 768 552 686
FA3 1950 850 950
8166 5002 5870
Ewing Natural Gas quarries are considering buying a new drilling machine, which when
compare to the existing machine is expected to be highly efficient.
Total
FA1 5
FA2 2
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FA3 3
NPV generates a thousand or more values (observations). Estimated values are a horizontal axis,
in which the displayed numbers of values for the calculated NPVs are displayed in the displayed
scenes, for example, 250 of the NPV value of $250 is 100, so 100 simulation calculations are
$250 on total probability. The analyzing of the NPV probability they can follows the steps that
are include the, Expected net presenting values, standard deviation, coefficient variation,
simulation analysis, approaches for the probability distribution of the analysis management.
FA3:
Year 1 Year 2 Year 3
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
100 200 400
350 250 150
1500 400 400
1950 850 950
If the height of each column has been revised to a percentage of the total number, the diagram of
the probability distribution of the NPV's plan, which assumes speculation about the supply of
individual cash flow, will become a great approximation.
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C o m p a n y F A 1 F A 2 F A 3
4083
1365
768
1950
8166
2501
1099
552
850
5002
2935
1299
686
950
5870
Total probability of NPV
Year 1 Year 2 Year 3
Figure 3-Total probability of the net presented values Dijk, G. (2013).
The analyzing and total probability of the NPV three year’s values on the function area 1 which
is identified the 5713 billion on the energy of product on the project development company.
Identified the second function area of the total probability on the energy product value is 2006,
and third function area of the probability energy product values is 3750 on the natural gas project
development organization.
Conclusion
A plan is implemented on the Ewing natural gas company to find the next three years of the
project undertaken on balanced risk on the return of investment portfolio on a big company using
excel calculation. Proposals for the next three years are discussed, where each proposal is linked
to the schedule of capital expenditure and financial analysis of expected revenue streams over the
next three years. Each proposal leads to an NPV. The minimum and maximum value are found to
specify the less than 15% and 20% below probability distribution. Management feels that if the
program works properly, then in the initial year the investment would be $3 million, then in the
next year it will be $4 million, and in third year $4billion.
Reference
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Bryfonski, D. (2015). Natural gas. Farmington Hills, Mich: Greenhaven Press, a part of Gale,
Engaged Learning.
Dijk, G. (2013). Distribution theory. Berlin: Walter De Gruyter GmbH.
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