Ponca City Cogeneration Plant: Model Improvement and Final Decision

4 Pages Posted: 2 Jun 2017

See all articles by Samuel E. Bodily

Samuel E. Bodily

University of Virginia - Darden School of Business

Abstract

This case follows up on the previous Ponca City case, addressing two classic flaws in spreadsheets of pro forma cash flows: (1) the treatment of the terminal value of the plant, and (2) the consistency of the assumptions about inflation.

Excerpt

UVA-QA-0747

June 30, 2010

PONCA CITY COGENERATION PLANT:

MODEL IMPROVEMENT AND FINAL DECISION

The base-case spreadsheet from Robert Patrick James was used by members of the project team to study the cogeneration plant project. The numbers it produced suggested that the project looked good to Oklahoma Gas & Electric (OG&E) with a positive net present value (NPV) of $ 3,098 thousands as a first-cut number. On the other hand, it would also look attractive to the executives of National Oil Company (Natoco) to build it themselves; the net benefit was a positive $ 1,020 thousands to Natoco. In a meeting about the project, a project analyst commented: “If we don't make it more attractive for Natoco to want us to build it, then they will simply do it themselves. What can we do?”

James responded:

. . .

Keywords: pro forma, terminal value, inflation, net present value, data and distributions, risk management

Suggested Citation

Bodily, Samuel E., Ponca City Cogeneration Plant: Model Improvement and Final Decision. Darden Case No. UVA-QA-0747. Available at SSRN: https://ssrn.com/abstract=2975121

Samuel E. Bodily (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4813 (Phone)
434-293-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/bodily.htm

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