Sprigg Lane (a)
14 Pages Posted: 1 Jun 2017
The president of a natural-resource exploration company has to decide whether to invest in a new drilling opportunity. He already has a spreadsheet that projects the most likely scenario for the well and calculates the NPV and internal rate of return. However, six uncertainties are discussed by the president and another potential investor. He also has prepared a spreadsheet for a couple of downside scenarios--one where gas is not able to be produced after the well is drilled and a second where gas is produced but all other uncertainties are at their 1% worst possible values. A student worksheet file is available for use with this case.
SPRIGG LANE (A)
May 19, 1988, was a beautiful day in Charlottesville, Virginia. Tom Dingledine could see some cows grazing in the pasture on the rolling hillside outside his window. He was grateful for the bucolic setting, which was made possible by his doing well with the projects he managed, one of which now required some concentration. Dingledine was the president of Sprigg Lane Natural Resources, a subsidiary of the Sprigg Lane Investment Corporation (SLIC). The decision at hand was whether to invest in the Bailey Prospect natural gas opportunity.
Founded in 1961, Sprigg Lane was a privately held investment corporation. It had become a diversified corporation comprising two major groups. The first was devoted to manufacturing high-quality home furnishings. Its masthead company was Virginia Metalcrafters, which produced handcrafted brass giftware. Other companies in the group included an outdoor-lantern company in Maine and an antique-reproduction furniture company in Maryland. With the establishment of the National Legal Research Group in 1970, another major group, the Research Group, was started. Since then, four other research companies had been added in the fields of consumer-product marketing, computer software, tax research, and investment financial analysis.
The recent formation of the Sprigg Lane Development Corporation, which was involved in the purchase and development of real estate, brought the total number of Sprigg Lane's subsidiaries to nine. SLIC sales for 1987 approximated $ 30 million, and it employed more than 525 people.
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Keywords: capital investment decision theory forecasting Monte Carlo simuation scenarios
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Sprigg Lane (a)
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