1.

Discuss what each type of financial tool is (NPV, PI, ECV…), and what are the strengths and weaknesses of each tool.

NPV: Net present value (NPV) is the difference between the present value of cash inflows and the present value o
planning to analyze the profitability of a projected investment or project.
The following formula is used to calculate NPV:
NPV=∑24_(𝑡=1)^𝑛▒𝑅𝑡/(1+𝑖)𝑡
where:
Rt=Net cash inflowoutflows during a single period t
i=Discount rate or return that could be earned inalternative investments
t=Number of timer periods
PI: Productivity index (PI) The productivity index is defined as the flow rate per unit pressure drop and serves as a
PI=𝑞/(𝑝−𝑃𝑤𝑓)

ECV: Expected commercial value (ECV) is what a company seeks in terms of maximizing the value of commercial

2. Calculate and fill in the table balnks, place your decision of "GO" or "KILL" under each scenario.

Scenario 1
Present Development Commercialization
Scenario 1 Net Present Value Ranking
Value Cost Cost
Zulu 30 3 2 25 3
Alpha 2 2 1 -1 8
Tango 4 0.5 0.75 2.75 6
Beta 5 3 2 0 7
Sierra 42 4.5 8 29.5 2
Echo 10 7 5 -2 9
Romeo 27 4 2 21 4
Oscar 8 1 0.5 6.5 5
Lima 69 10 5 54 1

Scenario 2 (25M Total Budget)

Net Present Development NPV Commercialization
Scenario 2 Sum of Costs
Value Cost Productivity Index Cost
Zulu 25 3 8.333 2 5
Alpha -1 2 -0.500 1 3
Tango 2.75 0.5 5.500 0.75 1.25
Beta 0 3 0.000 2 5
Sierra 29.5 4.5 6.556 8 12.5
Echo -2 7 -0.286 5 12
Romeo 21 4 5.250 2 6
Oscar 6.5 1 6.500 0.5 1.5
Lima 54 10 5.400 5 15

Scen

Probability of
Present Development Commercialization Probablity of
Scenario 3 Technical
Value Cost Cost Commercial Success
Success

Zulu 30 3 2 56% 41%

Alpha 2 2 1 34% 79%
Tango 4 0.5 0.75 54% 56%
Beta 5 3 2 58% 34%
Sierra 42 4.5 8 58% 64%
Echo 10 7 5 45% 76%
Romeo 27 4 2 37% 71%
Oscar 8 1 0.5 43% 42%
Lima 69 10 5 31% 65%

Scen

Probability of
Present Development Commercialization Probablity of
Scenario 4 Technical
Value Cost Cost Commercial Success
Success

Zulu 30 3 2 46% 41%

Alpha 2 2 1 34% 69%
Tango 4 0.5 0.75 44% 56%
Beta 5 3 2 58% 34%
Sierra 42 4.5 8 48% 54%
Echo 10 7 5 35% 66%
Romeo 27 4 2 37% 71%
Oscar 8 1 0.5 43% 32%
Lima 69 10 5 31% 65%

3. Based on the decision made above, discuss the similarities and differences in thouse outcomes.
and weaknesses of each tool.

h inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment

nit pressure drop and serves as an indication of the production potential of a well. It is defined as:

mizing the value of commercial appeal and worth of a portfolio, while working within certain budget constraints.

Decision

GO
KILL
GO
KILL
GO
KILL
GO
GO
GO

Profit Cost
Solver
Ranking Decision
Decision 63.75 20.25
1 GO 1 88.25 22.75
9 KILL 0
4 GO 1
7 KILL 0
2 KILL 0
 8 KILL 0
6 KILL 0
3 GO 1
5 GO 1

Scenario 3 (25M Total budget)

Value if Value if Expected Value Expected Expected

Expected Value
Commericial Technical before Value in Commercial
before Launch
Failure Failure Commercialization Development Value

0 0 16.8 14.8 6.1 3.1

0 0 0.7 -0.3 -0.3 -2.3
0 0 2.2 1.4 0.8 0.3
0 0 2.9 0.9 0.3 -2.7
0 0 24.4 16.4 10.5 6.0
0 0 4.5 -0.5 -0.4 -7.4
0 0 10.0 8.0 5.7 1.7
0 0 3.4 2.9 1.2 0.2
0 0 21.4 16.4 10.7 0.7

Scenario 4 (17M Total Budget)

Value if Value if Expected Value Expected Expected

Expected Value
Commericial Technical before Value in Commercial
before Launch
Failure Failure Commercialization Development Value

0.0 0.0 13.8 11.8 4.8 1.8

0.0 0.0 0.7 -0.3 -0.2 -2.2
0.0 0.0 1.8 1.0 0.6 0.1
0.0 0.0 2.9 0.9 0.3 -2.7
0.0 0.0 20.2 12.2 6.6 2.1
0.0 0.0 3.5 -1.5 -1.0 -8.0
0.0 0.0 10.0 8.0 5.7 1.7
0.0 0.0 3.4 2.9 0.9 -0.1
0.0 0.0 21.4 16.4 10.7 0.7
dgeting and investment

as:

dget constraints.
ECV Solver
Sum of Costs Ranking Decision
PI Decision

1.0 5.0 2 GO 1
-1.1 3.0 7 KILL 0
0.6 1.3 5 KILL 0
-0.9 5.0 8 KILL 0
1.3 12.5 1 GO 1
-1.1 12.0 9 KILL 0
0.4 6.0 3 GO 1
0.2 1.5 6 GO 1 ECV
0.1 15.0 4 KILL 0 10.9461

ECV Solver
Sum of Costs Ranking Decision
PI Decision

0.6 5.0 2 GO 1
-1.1 3.0 7 KILL 0
0.1 1.3 5 GO 1
-0.9 5.0 8 KILL 0
0.5 12.5 1 KILL 0
-1.1 12.0 9 KILL 0
0.4 6.0 3 GO 1
-0.1 1.5 6 KILL 0 ECV
0.1 15.0 4 KILL 0 3.5765
COST
25.0

COST
12.3