Q4 Answer all parts of the following: On an established natural gas treatment plant, an expansion project has been approved in principle; four options have been identified with different layouts, costs and capacities. Each option provides a capacity gain of up to 11,000 normal m' per day with a marginal sales price of 5.5 $/MMBTU and with operating costs and capital detailed in Table 1 below. Table 1: Identified Options for Expansion Project Small items, Daily capacity Operating Option Main items pipework etc gain (m3) cost ($/m3) a $ 700,000 $ 100,000 9,000 0.085 b $ 110,000 $ 20,000 2,500 0.065 c $ 800,000 120,000 10,000 0.070 $ 900,000 90,000 11,000 0.055 For significant capital equipment items your company uses a factor of 4 to estimate the installed cost. You can assume 8000 hours operation per year. Use the conversion factor of IMMBTU = 28.3 normal m' in your calculations. 1. When is it appropriate to use return on investment (ROI) in relation to financial decisions? [1] ii. For each case (a-d) shown in Table 1 above, calculate the ROI. As a manager, which option would you choose to take forward? Justify your answer. [5] iii. In the current geopolitical environment, gas prices may remain at the current high level for some time. In the case of a predicted gas price higher than 7.0 $/MMBTU, briefly discuss the best financial tool to use to evaluate the options in Table 1. [2] IV. Describe three methods for protecting the enterprise from the consequences of over-investment when sales prices are high, only to fall later. Give a suggestion as to who might be doing the over-investing? [4]