Simulation
The Bailey Prospect[1]
It is Thursday, May 18, 1988. Your assignment is to help Sprigg Lane Natural Resources evaluate the risks associated with a potential investment in the "Bailey Prospect," a natural gas opportunity in Doddridge County, West Virginia. Your colleague, Lisa Weatherford has done a thorough base-case analysis and constructed a spreadsheet model that you can use in your analysis. You and Lisa are financial analysts at Sprigg Lane Investment Corporation.
Background
Sprigg Lane Natural Resources (SLNR) is a new division of the Sprigg Lane Investment Corporation (SLIC) and was formed in 1987. SLIC is a privately held investment corporation founded in 1961. It had become a diversified company consisting of a total of 9 subsidiaries. The oldest three were in the home products business: a Virginia-based brass giftware company, an outdoor lantern company based in Maine, and an antique reproduction furniture company in Maryland. A second group of four subsidiaries formed in the 1970's was focused on research in the fields of consumer product marketing, computer software, tax research, and investment financial analysis. Hoping to capitalize on their tax and investment expertise, they recently formed Sprigg Lane Development Corporation and Sprigg Lane Natural Resources, which were involved in real estate development natural resource exploration, respectively. Sprigg Lane employed a total of 525 people and had revenues of $30 million in 1987.
Sprigg Lane Natural Resources was formed to pursue natural resource exploration because SLIC management felt that favorable tax laws provided them opportunities to achieve significant profits in this arena. Their primary goal was to find and produce natural gas from shale, to capture the so-called "Section 29" tax credits associated with such gas. Congress passed this tax credit in 1978 as part of the Natural Gas Policy Act in order to stimulate drilling for natural gas found in shale.
Although
It is Thursday, May 18, 1988. Your assignment is to help Sprigg Lane Natural Resources evaluate the risks associated with a potential investment in the "Bailey Prospect," a natural gas opportunity in Doddridge County, West Virginia. Your colleague, Lisa Weatherford has done a thorough base-case analysis and constructed a spreadsheet model that you can use in your analysis. You and Lisa are financial analysts at Sprigg Lane Investment Corporation.
Background
Sprigg Lane Natural Resources (SLNR) is a new division of the Sprigg Lane Investment Corporation (SLIC) and was formed in 1987. SLIC is a privately held investment corporation founded in 1961. It had become a diversified company consisting of a total of 9 subsidiaries. The oldest three were in the home products business: a Virginia-based brass giftware company, an outdoor lantern company based in Maine, and an antique reproduction furniture company in Maryland. A second group of four subsidiaries formed in the 1970's was focused on research in the fields of consumer product marketing, computer software, tax research, and investment financial analysis. Hoping to capitalize on their tax and investment expertise, they recently formed Sprigg Lane Development Corporation and Sprigg Lane Natural Resources, which were involved in real estate development natural resource exploration, respectively. Sprigg Lane employed a total of 525 people and had revenues of $30 million in 1987.
Sprigg Lane Natural Resources was formed to pursue natural resource exploration because SLIC management felt that favorable tax laws provided them opportunities to achieve significant profits in this arena. Their primary goal was to find and produce natural gas from shale, to capture the so-called "Section 29" tax credits associated with such gas. Congress passed this tax credit in 1978 as part of the Natural Gas Policy Act in order to stimulate drilling for natural gas found in shale.
Although