ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DOT COM ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DO | Page 37

You should also calculate another widely used criterion.
· What will be the IRR of the project?
Analyzing Risk using Scenario Analysis
You consider the electricity cost as one of the major factors affecting
your variable costs and would like to perform some additional
analysis to check the project’s sensitivity to electricity costs. As was
mentioned EIA has several electricity cost projections (Excel sheet,
tab Energy Prices Forecast). First you decide to see how your
recommendations might change under different cost scenarios.
· Perform scenario analysis on the electricity cost and present the
summary of results.
Break-even Analysis
Next, you would like to find the maximum electricity cost in year 1 at
which the project would still be advisable. For simplicity assume
0.5% annual growth of electricity costs.
· Find the break-even value for the electricity cost in year 1.
Monte Carlo Simulation
Finally, you would like to perform a Monte Carlo simulation. Possible
distribution assumptions are provided in Excel Spreadsheet tab
―Crystal Ball Simulation,‖ but you are welcome to make (and
explicitly state) your own and use Random Numbers generator in
Data Analysis Pack.
· Based on your analysis, what is the probability that the project will
be profitable?
[Crystal Ball] You also want to estimate the sensitivity of your project
to different factors.
· Using Crystal Ball, please create a Tornado Diagram and discuss its
results.
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