1. An offshore-wind company is considering undertaking an expansion project. If all goes well the project will cost $40 Million dollars, however there is a 30% chance that the project will run over budget and cost $56 Million dollars. You have the option to conduct an additional bathymetric surveys and geotechnical analysis that you estimate will reduce the risk of a cost overrun to 20%. These tests will cost $1.2 million dollars. a) Create a decision tree detailing your choice b) Calculate the expected values associated with i) proceeding with the project without conducting the survey, ii) proceeding with the project if the survey is conducted. c) What is the value of information of the bathymetric surveys and geotechnical analysis? d) Should you conduct the survey? 2. The offshore-wind company is considering purchasing a 50-tonne capacity tower crane in three year's time. Previously, in 2014 they had purchased a similar tower crane with a 27-tonne capacity for $1.8 million dollars. The current producer price index for lifting and material handling equipment is 235, while the index was at 215 in 2014. Current inflation rates are 2.5% per annum. i. Using the six-tenths rule to account for the change in capacity, estimate the approximate price of tower crane with a 50-tonne capacity in three year's time. ii. What is the estimated price if you assume a linear scaling law for the relationship between price and capacity instead? 3. You are considering conducting a brownfield expansion of an existing mining project. You believe there is a 10% chance the project will find a much larger continuation of the existing deposit and provide a return of $50MM to the company, a 30% chance the project will find a modest continuation to the known orebody and return $30MM to the company and a 40% chance that the project will find a small continuation and only return $15MM to the company. There is also the possibility that the project will find no continuation and return a loss of $20MM to the company. A) Draw the cumulative distribution function for the value of the project. B) Calculate the expected value of the project. C) Calculate the P10, P50 and P90 values of the project. 1. An offshore-wind company is considering undertaking an expansion project. If all goes well the project will cost $40 Million dollars, however there is a 30% chance that the project will run over budget and cost $56 Million dollars. You have the option to conduct an additional bathymetric surveys and geotechnical analysis that you estimate will reduce the risk of a cost overrun to 20%. These tests will cost $1.2 million dollars. a) Create a decision tree detailing your choice b) Calculate the expected values associated with i) proceeding with the project without conducting the survey, ii) proceeding with the project if the survey is conducted. c) What is the value of information of the bathymetric surveys and geotechnical analysis? d) Should you conduct the survey? 2. The offshore-wind company is considering purchasing a 50-tonne capacity tower crane in three year's time. Previously, in 2014 they had purchased a similar tower crane with a 27-tonne capacity for $1.8 million dollars. The current producer price index for lifting and material handling equipment is 235, while the index was at 215 in 2014. Current inflation rates are 2.5% per annum. i. Using the six-tenths rule to account for the change in capacity, estimate the approximate price of tower crane with a 50-tonne capacity in three year's time. ii. What is the estimated price if you assume a linear scaling law for the relationship between price and capacity instead? 3. You are considering conducting a brownfield expansion of an existing mining project. You believe there is a 10% chance the project will find a much larger continuation of the existing deposit and provide a return of $50MM to the company, a 30% chance the project will find a modest continuation to the known orebody and return $30MM to the company and a 40% chance that the project will find a small continuation and only return $15MM to the company. There is also the possibility that the project will find no continuation and return a loss of $20MM to the company. A) Draw the cumulative distribution function for the value of the project. B) Calculate the expected value of the project. C) Calculate the P10, P50 and P90 values of the project
