Case Study of Bg Group

Investment

 Proposal

  Introduction

  A

 sharp

 increase

 in

 the

 energy

 and

 resources

 industry

 has

 profound

 impacts

  on

 the

 global

 economy

 growth.

 Natural

 gas

 plays

 a

 key

 role

 in

 the

 UK,

 where

  it

 accounts

 for

 about

 4.4

 percent

 of

 GDP

 and

 has

 a

 contribution

 of

 51.8

 percent

  to

  the

  industrial

  investment

  in

  2010.

  Nonetheless,

  risks

  such

  as

  gas

  uncertainties

 should

 be

 taken

 into

 account.

  Selecting

 Optimal

  Firstly,

 notwithstanding

 its

 diverse

 advantages,

 IRR

 should

 not

 be

 used

 as

 to

  Investment

 Alternatives

  whether

 a

 project

 will

 be

 rejected.

 Secondly,

 scenarios

 such

 as

 gas

 might

 not

  be

  found

  is

  not

  considered

  in

  the

  NPV

  model.

  Therefore,

  EMV

  is

  the

  approach

  that

  could

  accommodate

  the

  probabilities

  of

  both

  successful

  outcomes

  and

  unsuccessful

  outcomes.

  As

  it

  captures

  the

  costs

  and

  margins

  based

  on

  different

  probabilities,

  EMV

  enables

  the

  company

  to

  evaluate

  its

  project

 position

 in

 terms

 of

 industry

 costs

 and

 margin

 curves.

  Economic

 Modeling

  If

  successful,

  the

  return

  would

  yield

  £114million

  while

  if

  unsuccessful,

  there

 would

 be

 a

 loss

 of

 £16

 million.

  Thus,...