How would you advise the client to value this project

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Reference no: EM131928527

An interviewing question: You are a consultant to a gas exploration company. Gas is avery pro-cyclical commodity and has a high beta.

You areexploring a field and you are certain that it has a capacity of x million cubic meters of gas. You have sold the productionschedule in the forward market for $20 million. It costs $10million to set up the drill, and 9 out of 10 times, this works thefirst time.

1 out of 10 times, you must try again, and this againhas a 90% chance of success (and so on). In 3 minutes or less,face-to-face with the client: how would you advise the client tovalue this project? What is the rough value?

An interviewing question: You are a consultant to a gas exploration company. Gas is a very pro-cyclical commodity and has a high beta. You are exploring a field and you are certain that it has a capacity ofx million cubic meters of gas.

You have sold the production schedule in the forward market for $20 million. It costs $10 million to set up the drill, and 9 out of 10 times, this works the first time. 1 out of 10 times, you must try again, and this again has a 90% chance of success (and so on). In 3 minutes or less face-to-face with the client: how would you advise the client to value this project? What is the rough value?

Reference no: EM131928527

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