• Conference 6
  • Agenda
    • Midterm 1
    • Project
    • Kinder Morgan Piazza Discussion Follow-up
  • Question

Conference 6

Agenda

Midterm 1

• Grades for take-home format is higher than expected (good thing).
• Midterm 2 will be less forgiving (but the final project grading would be).

Project

• Include risk analysis in the outline, and as course progress, hopefully they can be integrated (usually risk analysis is weaker).
• For the risk analysis, for the minimum, do a sensitivity analysis. What inputs are the model most sensitive to? Identify two to three that could cause potential issues.
• Then do a break-even analysis on that.
• Ensure the flow of the report works logically (i.e. it makes more sense to put market analysis before estimated revenue).
• Consider sources of funding and how it affects cost of capital, MARR.

Kinder Morgan Piazza Discussion Follow-up

• Federal government will buy KMP. They sold the existing pipeline along with work that’s been done on the expanded pipeline for $4.5B.

	Existing	Expansion
Purchase price	$ 4,500,000,000.00	$ 4,500,000,000.00
Annual benefit	$ 200,000,000.00	$ 1,200,000,000.00
Construction	$ -	$ 8,000,000,000.00

• If we consider the pipeline to be a long term investment (25 years), and we can get the interest rate the government is assuming (5%):

  • Present value is $2.892B, we can say that we over paid.
  • If the interest rate were to be 0.8%, then we would approximately break even.

• If we consider the expanded pipeline, at 0.8%, then the PV is $27.092B, while the cost is only $12.5B.

• If the oil demand lowers, it becomes a risk to the project (need consideration). We might want to sell existing pipeline (ignore inflation and deprecation).

  • Key factor for the resale price: lifetime and interest rate.
  • Buyer would probably have to finance or sell equity to make the purchase.
  • Suppose 20 years left, at 6%, the NPV is $2.294B.
  • Accounting for the resale value, from the government’s perspective (with revenue of $200M for the first 5 years), we lose $1.3B.

Question

Q: will midterm 1 be scaled down?

no, but midterm 2 will be quite different.

Q. How different should first draft or final report be?

Ideally, the same.

First draft feedback isn’t going to be fully detailed and would only outline logic or information flaws.

Q. Seen a perfect report?

B is easy. High A is tough.

Q. How not to give up easily on one topic before choosing another one?

Gathering information for a topic is hard. Find suitable survey data etc.

For “how do I do this”, contact Dr. Hollett.

Q. Confidential information in report?

If information is from UBC, professor reading it is fine.

If information is from companies, then anonymize the information such that it can be viewed publicly, or provide NDA to professor.

Q. What should the presentation outline look like?

Make is specific to your topic, don’t be too generic (i.e. cost and revenue model with a detailed description outlining input, outputs, and analysis).