IV. Mini Case (spreadsheet tab "MiniCase") Crazy Brook Meadow Ski Resort The Crazy Brook Meadow Ski Resort, hereafter CBM, is a small ski resort in Northern New England. CBM does not have snow making capability and depends, therefore, on Mother Nature to provide the snow for the ski season. The owner is worried that climate change may affect snow fall and the business may suffer under years where snow fall is low. CBM does not have enough cash reserves to go through a truly bad ski season. Average snow fall for the resort is approximately 220 inches a season. The average revenue for a ski season is approximately $30 million. The resort has a breakeven revenue need of $20 million. Your own personal prediction for snowfall for the 2020 ski season (fall/winter 2019 through winter/spring 2020) is 170 inches. The national weather service is predicting 190 inches. An area (Northern New England) snowfall contract is available on a U.S. futures exchange. The contract settles at $500 times the snowfall in inches for the contract area, and trades in points (inches), with the minimum movement being 0.5 inches. The contract is currently at 190. Do a statistical analysis (like a regression) on the data. At 190 inches how much revenue would you predict for CBM? At 170 inches how much revenue would you predict for CBM? Suppose you wanted to hedge against the National Weather Service prediction. How many contracts would you need in round numbers) to hedge against a drop in snowfall? Snowfall Revenue 220 $ 30,000,000 6 Average 8 Season 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 27 2020- 210 $ 296 $ 272 $ 116 $ 321 $ 226 $ 303 $ 242 $ 181 $ 151 $ 346 $ 234 $ 163 $ 122 $ 155 $ 212 $ 198 $ 170 190 27,515,912.00 48,989,347.00 42,985,009.00 4,004,574.00 55,240,139.00 31,506,324.00 50,749,276.00 35,519,955.00 20,230,138.00 12,755,140.00 61,514,213.00 33,505,697.00 15,759,282.00 5,488,905.00 13,733,320.00 27,986,787.00 24,501,997.00 29 predicted by you 30 * National weather service 31 IV. Mini Case (spreadsheet tab "MiniCase") Crazy Brook Meadow Ski Resort The Crazy Brook Meadow Ski Resort, hereafter CBM, is a small ski resort in Northern New England. CBM does not have snow making capability and depends, therefore, on Mother Nature to provide the snow for the ski season. The owner is worried that climate change may affect snow fall and the business may suffer under years where snow fall is low. CBM does not have enough cash reserves to go through a truly bad ski season. Average snow fall for the resort is approximately 220 inches a season. The average revenue for a ski season is approximately $30 million. The resort has a breakeven revenue need of $20 million. Your own personal prediction for snowfall for the 2020 ski season (fall/winter 2019 through winter/spring 2020) is 170 inches. The national weather service is predicting 190 inches. An area (Northern New England) snowfall contract is available on a U.S. futures exchange. The contract settles at $500 times the snowfall in inches for the contract area, and trades in points (inches), with the minimum movement being 0.5 inches. The contract is currently at 190. Do a statistical analysis (like a regression) on the data. At 190 inches how much revenue would you predict for CBM? At 170 inches how much revenue would you predict for CBM? Suppose you wanted to hedge against the National Weather Service prediction. How many contracts would you need in round numbers) to hedge against a drop in snowfall? Snowfall Revenue 220 $ 30,000,000 6 Average 8 Season 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 27 2020- 210 $ 296 $ 272 $ 116 $ 321 $ 226 $ 303 $ 242 $ 181 $ 151 $ 346 $ 234 $ 163 $ 122 $ 155 $ 212 $ 198 $ 170 190 27,515,912.00 48,989,347.00 42,985,009.00 4,004,574.00 55,240,139.00 31,506,324.00 50,749,276.00 35,519,955.00 20,230,138.00 12,755,140.00 61,514,213.00 33,505,697.00 15,759,282.00 5,488,905.00 13,733,320.00 27,986,787.00 24,501,997.00 29 predicted by you 30 * National weather service 31
