Name.
Student ID.
Signature.
THE UNIVERSITY OF NEW SOUTH WALES
SCHOOL OF MECHANICAL AND MANUFACTURING ENGINEERING
NOVEMBER 2009
GSOE 9830 ENGINEERING ECONOMICS
1.
TIME ALLOWED THREE (3) HOURS
2.
READING TIME 10 MINUTES
3.
THIS EXAMINATION PAPER HAS 6 PAGE

FE Practice Problems w/ Solutions
4-114 1
If you borrow $3,000 at 6% simple interest per year for seven years, how much will you
have to repay at the end of seven years? [4.4]
(a) $3,000
(b) $4,511
(c) $1,260
(d) $1,511
(e) $4,260
Solution:
I = ( P)( N )(

Name .
Student ID.
Signature.
THE UNIVERSITY OF NEW SOUTH WALES
SCHOOL OF MECHANICAL AND MANUFACTURING ENGINEERING
SEMESTER 2 2014
GSOE 9830 ECONOMIC DECISION ANALYSIS IN ENGINEERING
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
TIME ALLOWED THREE (3) HOURS
READING

FE Practice Problems w/ Solutions
5-631
Elin purchased a car for $10,000. she wrote a check for $2,000 as a down payment for
the car and financed the $8,000 balance. The annual percentage rate (APR) is 9%
compounded monthly, and the loan is to be repaid i

GSOE 9830
Tutorial Problems (Week 4)
Bill just won the sweepstakes in Sydney. He has the option of either receiving a check
right now for $125,000 or receiving a check right now for $50,000 each year for three
years. Bill would receive the first check for

GSOE9830
Solutions to selected tutorial problems
Ch 4
4-8 F = $10,000 (F/P, 6%, 5) = $10,000 (1.3382) = $13,382
4-32 P = $2,500 (P/A, 5%, 4) = $2,500 (3.5460) = $8,865
4-57 This is a deferred annuity, the time periods are months, and i = 3/4 % per month:

Monte carlo simulation illustration
Peak rt in KbopdOil price in US$/ Capex in $MM/K Opex in %
10%
1.0 10%
1.0 10%
1.0 10%
90%
2.0 90%
2.0 90%
2.0 90%
M of ln
S of ln
0.3
0.3
1.5
Mean
Stand de
0.4
Rand N Value
1.2
0.291
M of ln
S of ln
0.3
0.3
1.5
Mean
St

Question
GSOE 9830
Risk Analysis
Questions & Answers
What are sensitivity analyses?
Sensitivity Analysis
Questions
1
Answer
2
Question
Economics sensitivity analyses show by how
much a result (for example, an NPV) changes
if we change one of the inputs by

Exploration drilling decision
Calculate the expected value for the following prospect
Value of success
50 $MM
This includes the after-tax cost of the well & assumes it attracts immediate fiscal
relief because the company drilling the well is already payin

Monte carlo Simulation Illustration - Simple Addition of Co
Costs A Input $MM
10%
10
90%
100
Mean of ln
3.45
SD of ln
0.90
Mean
47
Stand dev
53
Rand No
Value
0.069
8.3
Sample
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

Monte carlo Simulation Illustration - Simple Addition of Co
Costs A Input $MM
10%
10
90%
100
Mean of ln
3.45
SD of ln
0.90
Mean
47
Stand dev
53
Rand No
Value
0.391
24.7
Sample
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2

Probability distribution of well drilling times - using statistics.
Calculate the mean, the mode, the standard deviation, the P90, P50 and the P10 of the drilling times in locations A and B.
The data for Location B is the same as that for Location A, exce

Spider diagram
Draw a spider diagram showing the sensitivity of the
NPV to changes in peak rate, oil price and capital costs.
Use the following data and the grid on the next page.
Sens Peak rate Sens
%
Kbopd
%
1 50%
10 100%
2 100%
20 100%
3 200%
40 100%
4

Probability distribution of well drilling times - using statistics.
Calculate the mean, the mode, the standard deviation, the P90, P50 and the P10 of the drilling times in locations A and B.
The data for Location B is the same as that for Location A, exce

Adding costs probabilistically Enter data in white cells only
Platform
$MM
10%
90%
M of ln
S of ln
29%
Mode
50%
Mean
Sdev
1.0
2.0
0.35
0.27
1.2
1.3
1.4
1.5
0.4
$MM
$MM
10%
1.0 10%
90%
2.0 90%
M of ln 0.35 M of ln
S of ln 0.27 S of ln
42%
1.3 18%
1.3
1.4
1

Central Limit Theorem illustration
Dist 1
10%
1.00
90%
1.10
M of ln
0.05
S of ln
0.04
Mean
1.05
Stand de 0.04
Rand N Value
0.313
1.03
Enter data in w
Dist 2
Dist 3
Dist 4
Dist 5
10%
1.00 10%
1.00 10%
1.00 10%
90%
1.10 90%
1.10 90%
1.10 90%
M of ln
0.05 M

Seismic decision tree
What is the expected value of conducting the seismic programme ?
What is the expected value of not conducting the seismic programme ?
Should we conduct the seismic programme ?
What is the value of the right to explore ?
Data in $MM
S

Adding reserves
No correlation
Grouped & ordered Positive correlation
Total
Negative correlation
Total
Field A Prob A Field BProb B A+B Prob
A+B Prob Field A Prob AField B Prob B A+B Prob Field AProb AField BProb B A+B Prob
MMbbl
% MMbbl
%MMbbl
%
MMbbl
%

Drilling many wells
Find the EMV of the 4 well drilling programme.
Each well has a 15% probability of success. The wells are independent.
The NPV of success is $100MM excluding the discovery well cost. The cost of each well is $10MM.
Work out the EMVs, co

Production test decision
We have made a discovery and are considering whether or not to carry out a
long term production test to help us make a field development decision.
Experience from similar discoveries has told us that individual well production
rat

Probability distribution of well drilling times - using statistics.
Calculate the mean, the mode, the standard deviation, the P90, P50 and the P10 of the drilling times in locations A and B.
The data for Location B is the same as that for Location A, exce

Diversifying investments 1
You have a 100% participating interest in a new discovery of oil.
The reserves distribution has a mean of 44 MMbbl and a standard deviation of 40 MMbbl
The P90 is 10 MMbbl, the P50 is 32 MMbbl and the P10 is 95 MMbbl.
Suppose th

Covariance and correlation coefficient
# Use manual calculation and Excel formulae to obtain the mean, variance and standard deviation
for each of investments A and B separately.
# Use manual calculation and Excel formulae to obtain the covariance and the

Many decisions
1
Many decisions
Most oil and gas companies have a portfolio of exploration prospects in the same or different
licences. An example drilling portfolio is given in Figure 1, which shows all the possible
sequences of events in drilling 3 inde

Decision Trees
1
Decision Trees
In earlier sections we discussed the use of probability analysis and gave examples of its
use in deciding whether or not to drill an exploration well, in deciding whether or not
to farm out a well or how much of it to farmo

Portfolio Analysis
1
Portfolio analysis
The economic attractiveness of individual risky investments is assessed by two measures:
a) The mean or expected value (EV) of the investment. This gives us a single measure of
value of the investment to our company

Monte Carlo simulation
1
Monte Carlo Simulation
We have so far discussed probability distributions of single variables which might form part
of an economic analysis. In this section, we extend the analysis and examine how we could
combine probability dist