Case Analysis

 
Money back Guarantee

Why Us

  • We offer the most reliable services in the market
  • Provision of custom written material
  • UK, US, Canadian, Australian writers
  • Our services are available 24/7
  • 100% satisfaction

Northern Drilling Inc.:

The Mond Nickel Contract Decision

Table of Contents Executive Summary 3 Introduction – Situation and Issues 4 Situational Analysis 5 SWOT Analysis 5 VRIO Analysis 6 Industry Analysis 7 Porter’s Five Forces Analysis 7 PESTE 7 Competitor Analysis 8 Competitor Financial Comparison 2010 8 Perceptual Map 9 Customer Analysis 9 Financial Analysis 10 Identifying Strategic Alternatives 10 Simple Ranking Table 11 NPV Analysis 12 Pro-Con-Fix 12 Recommendation 13 Implementation 13 Evaluation Criteria 14 Can it be financed? 15 Appendix 16 A1. Net Present Value Analysis: Intermediate Job 16 A2. Net Present Value Analysis: Deep Job 16 A3. Net Present Value Analysis: Both Jobs 16 A4. Forecasted Intermediate Job Income Statement 17 A5. Forecasted Deep Job Income Statement 17 A6. Forecasted Deep & Intermediate Job Income Statement 18 A7. Peste 19

18

Executive Summary

The purpose of this report is to inform Northern Drilling Inc. of our recommendations on whether the company should move forward with a bid for the Mond Nickel Company’s mine exploration. Mond has sent out a request for proposal for two drilling jobs: an intermediate job and a more technical deep job. We have conducted a thorough analysis of the strategic options Northern Drilling could take; which include bidding on both jobs, bidding on only the intermediate job, bidding on only the deep job, and not bidding on either job. Northern’s vision is to secure long-term specialized jobs. Through an analysis of Northern Drilling’s competitors, customers, industry, and finances we have determined that bidding on both the deep and intermediate jobs is the most strategic option.

Northern has a strong performance record in technical (what?) and good reputation with its clients in the mining industry, particularly Noranda Nickel who makes up about 60% of their revenue. In comparison to the industry, Northern has a lower debt-to-equity ratio and current ratio. They have the financial ability to take on more debt and increase their assets. This is a good sign, as both projects will require the purchase of eight new diamond drill rigs. Most importantly when cross comparing the net present value, bidding on both projects will yield the most positive net present value.

Northern is able to capitalize on their valuable service and technical ability, while securing drillers who will be attracted to the long-term contract. They are positioned between competitors Boart and Major, in terms of technical skill and price. Northern will also make their mark in the technical drilling market by successfully performing this project for Mond. The mining industry is extremely price sensitive, cyclical, and competitive. A passed over opportunity by Northern opens the door for it’s competitors to excel. If Northern wishes to be known as one of the most technically competent drillers in Canada, they must exploit opportunities such as this. although it does currently have a good reputation

Going forward, Northern needs to secure contracts and start training their own drillers, which will help reduce their weakness of not having enough drillers available for projects. They need to monitor employee satisfaction and keep their debt to equity at the industry standard, around 0.30, so that they can continue future expansion and continue paying back their creditors. Bidding on both projects and performing a good job will help Northern meet their strategic objectives for the upcoming years.

I am going to stop highlighting the pronoun error.

Introduction – Situation and Issues

Northern Drilling is a subsidiary of InterDrilling Corporation, the world’s third largest exploration drilling contractor. Since 2006, the company has been lead by CEO, Peter Bremner, where they began to acquire other drilling companies across Canada. Since then they have established their company as a full spectrum services company with superior technical capability and high safety standards. Although the company has several successful contracts, they are currently struggling to stay competitive within the market. Northern Drilling would like to acquire more specialized and complex jobs where they are able to differentiate themselves from their competitors. The company would also like to acquire these complex jobs in order to attain a higher gross margin. The industry is currently facing many difficulties such as a shortage of experienced personnel and the availability of machines(more an internal issue than industry) and equipment for complex projects, which increases the risks faced with specialized projects.

In October 2011, Northern Drilling had received a Request for Proposal from Mond Nickel Company for their latest exploration contract. If the contract were to be attained by Northern, it would be the company’s largest contract to date. One of Northern’s growth strategies is to develop a relationship with their potential new client, Mond, although it may compromise their already existing relationship with another contract, Noranda Nickel. Bremner must assess if Northern is capable of sustaining quality work because poor execution could potentially tarnish the company’s reputation and halt repeat business from Mond, as well as other future clients. Northern must also decide whether it will be a strategically sound decision to bid for a contract with Mond despite the possibly of jeopardizing their relationship with Noranda. Other issues that Northern would need to consider would include their lack of experienced personnel, the availability of equipment for the job, and uncertain geological conditions, which all may cause extra risk in doing this job. Due to other competitors that are also bidding to win the contract, Northern will have to come up with a strategy that will out bid their rivals, as well as include a hurdle rate of 20%.

In order to come up with a sound decision Bremner needs to assess the company’s financial situation to consider which option would be possible, and which decision would be the best strategy to ensure long-term growth. Is the company able to finance another drill? Would this be too risky? Could Northern invest in new equipment, or should they only bid for one of the two jobs? Should they bid aggressively or give Mond a discount?

Situational Analysis – Introduce

SWOT Analysis

Strengths Weaknesses
· Manager Bremner developed positive relationships with big players in industry

· Manager Bremner 30 years experience in mining industry

· Company treats employees well

· Offers full spectrum services

· Superior technical capabilities

· High safety standards

· Differentiated through specialized work

· Deep Drills are fully utilized

· 3rd largest exploration drilling company

· Renegotiation of Noranda contract would free up four drills – not a current strength

· Favorable debt to equity ratio

· Recognized for being capable of doing complex and specialized jobs (specialized drilling yield higher margins)

· Strong corporate culture evidence?

· Mining equipment expensive – $550,000 for a drill – not a w, this is true for all

· Struggling to be competitive – too expensive

· No diamond drills available for 2012capacity

· Reputation with it’s clients could be at risk if they secure Mond deal

· If Northern underperforms it would compromise relationship with Mond in the future

· Taking Mond job could negatively affect current jobs with other companies

· Above points are not weaknesses they are cons of the bid

· Utilization of 75% of all drills

· Shortage in experienced employees (drillers) – threat

· Reliant on Noranda for majority of its income

Opportunities Threats
· Exploration market expected to grow, short-term outlook is positive

· Exploration market largest market in the world

· Canada Exploration market US$1.4 billion

· Most work gained through referrals

· Mond project long-term, specialized

· If job is executed properly, Northern would be established as most technically competent in Canada

· Diversification of income sources (60% of Northern’s revenue come from Noranda)

· Increase demand for specialized drilling

· Exploration budgets are high by region (Canada 19%)

· Future opportunities for Northern’s growth strategy

· Poor geological conditions could cause costly mistakes

· Mining industry highly cyclical and dependent on commodity price

· Market very uncertain

· Shortage of experienced drillers

· Highly competitive market – Boart, Major, Orbit

· Owner-operators drive down prices

· Losing the bid to competitors

VRIO Analysis

Does Northern have the resources to exploit this opportunity with Mond?

Valuable?

Yes. Northern has valuable resources in the form of drills, and other essential equipment, as well as personnel. Their firm has a reputation of being technically competent and is capable of successfully completing the job. They are currently running at only 75% capacity and could pull the rest of their resources into this job.

This job will differentiate Northern from competitors because of the technical difficulty associated with it. Northern is already seen as a more technical drilling company, and they can utilize their skill for Mond.

Rare?

Yes. The competition competing for the job all have similar resources, however only Major has the technical competence to match Northern’s. Boart has currently been underperforming and Orbit does not have the technical skill to compete against Northern for the deep drilling job. Major has the capability to complete the job as well as Northern, their focus is more global and the Mond job is not a strategic move for them.

Imperfectly Imitable?

Yes. While all competitors have similar drills and equipment, it does not mean they can do the same technical work that Northern can. The ability to drill deep with little error is something that Boart and Orbit have not proven themselves to be currently capable of.

Organized to capture Value?

No. Bremner is unsure if his company is capable of taking on this project as it would require a lot of human capital and machinery and could take Northern away from their current clients, such as Noranda. Whether or not they are able to capitalize on this opportunity is the forefront of the problem faced by Bremner.

Conclusions:

A VRIO analysis was used to determine if Northern can use its resources to exploit an opportunity such as the Mond contract in order to create a sustainable competitive advantage. While the resources that Northern hold are not dissimilar from their competitors, as they all own drills, equipment, and employ skilled personnel, the way they have used them to complete the work and create a reputation. Their personnel’s skills have made Northern technically competent to complete the Mond project, something only their competitor Major is able to do. This makes their resources rare, valuable, and imperfectly imitable in the diamond drilling industry. Though Major does have greater technical skills and more resources, as a global company the Mond deal is not strategic to their success. The problem faced is whether or not Northern is organized to capture the value of their resources in being able to successfully complete the proposed job. Though their employees are skilled, they currently do not have enough for the job. Though they have the necessary equipment, they will need to invest in more if they decide to bid. Northern must also acquire more drillers, in which there is currently a shortage. Excellent!

Industry Analysis – Introduce

Porter’s Five Forces Analysis

Competition from Rival Sellers: High. Exit barriers are extremely high because of the amount of capital invested in the companies from mining equipment to skilled employees. There are 3 major competitors for the Mond job, however the industry is much larger with 80 Canadian competitors alone.

Threat of Substitute Products: Low. While Mond or other clients could spend their money elsewhere, the threat of that is extremely low as this is a project they have already determined they need done.

Buyer bargaining power: High. The industry is extremely price sensitive. Most business is attained through referrals. No traditional marketing done in drilling industry. Dependent on commodity pricing. Mond has sent out a Request for Proposal, meaning all competitors have created plans and offers to take the project.

Supplier bargaining power: High. Northern is highly reliant on the supply of skilled employees (drillers) and industry is currently facing a shortage. Also, specialized drilling equipment is required, which is costly to purchase.

Threat of new entrants: Low. Entry barriers are extremely high because of the amount of capital it would take to acquire mining equipment. Experience and reputation is key in the industry, and as business is generated through referrals, new entrants may not be trusted to get a job done properly. Owner-operator business is one way to enter market that can be successful.

Conclusions: The mining industry is competitive due to the high cost of equipment and skilled employees. Most business is generated through referrals, so reputation is key. If Northern were to secure the Mond job but not be able to successfully complete it, their future business would be affected. If Northern were to comprise their relationship with Noranda in order to complete the Mond job, their reputation would take a hit. In an industry where buyers are price sensitive, marketing is almost non-existent, and word of mouth secures jobs, a misstep by Northern would make their future in diamond drilling uncertain.

PESTE

A company’s external environment must be examined to determine factors that are beyond the firm’s control. For Northern, a PESTE analysis is conducted to overview political, economic, social, technological and environmental factors. See Appendix (A7).

Political:

The political atmosphere is relatively stable for Northern. There may be laws passed in the future that put restrictions on drilling and exploration. Short-term outlook for Canadian mining sector is positive but not certain. Some political parties, such as environments, might raise questions regarding pollution.

Economic:

Demand for drilling services is based on the health of the mining industry in Canada. Mining is cyclical and heavily dependent on commodity prices. There is a shortage of experienced drillers in the industry.

Technological: – this should be on the industry, NOT Northern

Northern is considered to be one of the best companies in maintain high safety standards and sustaining superior technical capability. Due to specialized work, Northern is able to differentiate itself from competitors

Social: this should be on the industry, NOT Northern

Northern has an established relationship with Noranda and a potential deal with rivals Mond may tarnish the relationship between the two companies. Conversely, most work attained in the industry is through referrals from rival mining companies. The primary concern for clients is the reputation of service provided.

Environmental:

Environmental conditions could lead to delays on the Mond project if the bid is won. The job is complex and requires drilling to depths that Northern is not used to. Geological conditions can set the company back with drilling.

Competitor Analysis

Introduce. This is probably better placed in an appendix and summarized in the body.

Company Capabilities Price Reputation Capacity
Boart Longyear (Boart) -Underperforming management & labour Medium World’s oldest & largest
Major Drilling Group International Inc. (Major) -More experience & technically capable

– driller training camps

High Little work with Mond in past constrained
Orbit Garant Drilling Inc. (Orbit) – routine drilling

– less technical experience

Low Discount contractor —-

Competitor Financial Comparison 2010 – you have presented the data but not explained the relevance

Major Akita Orbit Northern
Current ratio 2.57 4.04 3.16 1.24
Debt to equity 0.30 0.21 0.21 0.19
Total debt to assets 0.23 0.17 0.17 0.11
Gross margin 24.2% 38.8% 30.5% 30%
Utilization 90%* ** 75%

Perceptual Map

Interesting, but again, you have not explained the relevance.

Customer Analysis Relevance?

Mond

Length of Job – 3 years (each year contract renewed)
Type of Jobs – 2 jobs, medium & deep drilling.

– Complex job that Mond that must be prioritized

– Require detailed profile of employees (drillers)

Pricing Sensitivity – Low for deep job. Cannot be picky with skill

– Medium for medium job.

Price – Fixed cost per meter, poor conditions warrant additional hourly pay

– Costs/delays due to negligence are Northern’s responsibility. Synergies of 2% realized if both jobs won.

Noranda Nickel

Relationship – 60% of Northern’s revenue
Job – One year left in contract

– 8 years left of production in Sudbury.

– Will need to explore mine locations soon (takes 7 years to go from discovery to production)

– Have infrastructure for three more mines

Pricing Sensitivity – low, relationship with Northern is strong

Financial Analysis – Relevance>

Northern Drilling Financial Ratios

Ratios Dec 31, 2010 (actual) Sept 30, 2011 (actual) Dec 31, 2011 (forecast)
Utilization Rate 75%
EBIT 26%
Liquidity
Working capital $2,817 $10,720 $13,018
Current Ratio 1.24

1.78

2.00

Leverage Ratios
Total debt-to-assets 0.11 0.03 0.02
Debts to Equity 0.19 0.04 0.04

Identifying Strategic Alternatives

There are four alternatives of taking job for Bremner the executive manager of Northern Drilling Inc. to consider:

A. Bid on both jobs

B. Bid on deep Job only

C. Bid on intermediate job only

D. Do not bidwhy struck?

 

Simple Ranking Table – you do not rank before you analyze

Scale: 1=Best, 5=Worst

Criteria in order of importance Bid on both Bid on deep job only Bid on intermediate job only Do not bid on either job

(remove)

1. Maximize future growth 1 3 4 5 (worst score)
2. Maintain industry relationships 3 2 2 1
3. Minimize Job Complexity 3 3 1 1
4. Minimize Hiring Labour 4 2 1 1
5. Minimize Investment 5 4 3 1
Total 16 14 11 11

E. Bid on both jobs

F. Bid on deep Job only

G. Bid on intermediate job only

H. Do not bid ????

Why repeated?

Not submitting a proposal is removed from the decision after using the simple ranking tool. There is no obvious advantage of giving up this proposal as it may block Northern’s growth strategy. We are not using the totals to choose, but will go through a net present value analysis and pro-con in order to make our final decision.

NPV Analysis – you did not do it?

A. Bid on both Jobs

C. Bid on deep Job only

D. Bid on intermediate job only

E. Do not bid

The net present value for alternative A is $16,286 (appendix A1okay you don’t need the table above on NPV since it contains no information) which is positive, therefore, Northern Drilling can expect it to earn more than the 20% hurdle rate, making this an attractive investment. The same goes for alternative B. It is has a positive net present value of $1,413,805 (Appendix A3), therefore, it is an attractive alternative. Bidding only on the deep job, alternative C, will not yield a positive net present value and can be removed from our decision.

Pro-Con-Fix

A. Both Jobs

Pros Cons
· High return on investment

· Build a new long term client

· Improve equipment productivity (more drills)

· Improve company reputation

· Train new personnel  (24 new personnel required)

· 2% synergies for doing both jobs

· High Cost

· High risk (mining industry is cyclical in nature)

· May lose existing client (Noranda)

· Drills at Noranda become unutilized

Fix:

· Through negotiating with Noranda to keep client relationship.  may be a bit optimistic. Capacity concerns?

· Negotiate new diamond contracts with other clients

Note: From the case data, Noranda still has the capacity for three more mines, and that the useful life of one of its mines is going to end soon. It is likely that Noranda will require Northern’s drills for projects in the future.

D. Intermediate Job

Pros Cons
· The intermediate job represents a profitable and safe growth strategy for Northern

· Less risky way to establish relationship with Mond

· Easier to manage current clients

· Less potential revenue versus performing both jobs and bidding only on the deep job

· High risk (mining industry is cyclical in nature)

· Lower return on investment (A4)

· Won’t establish Northern as one of Canada’s most technically competent drilling contractors

Recommendation – okay I get the repetition now.

A. Bid on both jobs

B. Bid on deep Job only

C. Bid on intermediate job only

D. Do not bid

The most strategic decision Northern can make is to bid on both the deep and intermediate jobs. The positive net present value means it will bring favorable returns, even at the traditional 30% gross margin. It aligns with Northern’s strategic growth objective, of securing a long term specialized contract. Northern has the ability to take on debt for equipment purchase as their debt to asset & debt to equity are decreasing, Comparing their current ratio to industry shows Northern with the lowest (in 2010), and the ability to carry more assets on the balance sheet in the form of equipment. As for competitors, Orbit has the ability to outbid Northern on the intermediate job, but not on the more technical deep job. If Major is constrained by capacity, they will price too high for Mond and it is better to assume that they will price high. It is not a good long-term strategy to discount Northern’s pricing, because it may reduce our ability to operate at 30% gross margin. Running at a lower margin may reduce performance and make it harder to secure talented drillers.

Implementation

Before submitting the proposal for both jobs with Mond, Northern should have a meeting with someone at Noranda to explain the situation and talk about what their future exploration plans are. Scaling back gives Northern the opportunity to transfer drills to the Mond job and reduce the initial investment cost, leading to an increased return on investment. Even if they are not willing to scale back, a discussion before putting in the bid shows that Northern does not want to hinder the relationship. What else?

Implementation Timeline: Oct – Dec 2011

Date Noranda Mond Labour Equipment
Oct (first week) Talk with Noranda regarding their exploration plans
October (third week) Submit proposal

Nov Begin training driller’s assistants – with the goal of having them ready for work in 18 to 30 months.
Dec Prepare Noranda contract renewal Hire 24 drillers on a two year contact (until driller assistants become certified drillers) Purchase 8 drill rigs

Evaluation Criteria

Criteria 2012: 6 months end 2012: year end
Gross margin Confirm that both projects keep gross margin close to 30% Reach 30%

Employee Satisfaction Have driller-assistant training program in place

Survey new drillers and driller assistants
Employee Turnover Reduce in the first year, as Northern must retain its best drillers in order to perform efficiently
Relationship with Mond Established Enhanced
Utilization Bringing on eight new drills (all fully utilized) should bring our average utilization rate to 80% (i) Maintain 80% utilization

Debt-to-Equity Increasing to 0.33 debt-to-equity is reasonable when compared to competitors Maintain debt-to-equity

(i) 34 * 0.75 = 25.5 + 8 = 33.5

34 + 8 = 42

33.5 / 42 = 0.80

Can it be financed? Good!

Northern has the financial ability to finance the equipment expansion through debt, without increasing equity at this time. Though, they may need ask for more shareholder investment towards 2012 year end, if they begin having trouble paying back their debt.

Forecast Debt/Equity Ratio for Year 2012

(8 Drills)

Total Debt $ 8,094,000.00
Total Equity $ 24,477,000.00
D/E Ratio 0.33

Appendix

A1. Net Present Value Analysis: Intermediate Jobcash flows annually are correct

A2. Net Present Value Analysis: Deep Job annual cash flows are correct

A3. Net Present Value Analysis: Both Jobsannual cash flows are correct

A4. Forecasted Intermediate Job Income Statement

costs and profits_Northern Drilling Financials

A5. Forecasted Deep Job Income Statement

costs and profits_Northern Drilling Financials

A6. Forecasted Deep & Intermediate Job Income Statement

costs and profits_both

A7. PESTERemember PESTE is industry, you have some points that relate to ND only (highlighted)

Political Economic
· Canadian government supports the industry

· Canada is considered to be a politically stable country

· Different political parties, such as environments, may oppose to the project due to pollution concerns

· Mining industry is highly cyclical and highly dependent on commodity prices

· Health of drilling services market depends on health of mining industry

· Short-term outlook for Canadian mining sector is positive but not certain

· Since 2009, there is a shortage of experienced drillers in the mining industry

· Industry is highly competitive and fragmented

· 3 other drilling contractors bidding for Mond contract

· Selling in industry facilitated through referrals or cold calls

Technological Social
· High quality intact core samples dependent on highly capable and experienced employees.

· Higher margins secured for more complex jobs.

· Northern considered full services company with superior technical ability and high safety standards

· Specialized work differentiates Northern from competitors.

·

· Good relationship with current clients

· Primary concern when sending RFP’s is reputation of service provider

· Most work attained through referrals why social?

· Uncertain capability of putting together a team to do Mond Job

· Strong relationship with Noranda could be compromised if contracted with Mond

Environmental
· Potential bad geological conditions could cause delays and increase costs

· Mond job is complex and deeper drilling than what Northern is used to

Deep Job PV Factor Net Cash Inflow Present Value

(i=20%)

2012 (n=1) 0.833 $ 1,760,000.00 1466080

2013 (n=2) 0.694 $ 1,760,000.00 1221440

2014 (n=3) 0.579 $ 2,765,714.29 1601348.571

4288868.571

4,500,000

-211,131

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (5 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Deep Job PV FactorNet Cash InflowPresent Value

(i=20%)

2012 (n=1) 0.833 $ 1,760,000.001466080

2013 (n=2) 0.694 $ 1,760,000.001221440

2014 (n=3) 0.579 $ 2,765,714.291601348.571

4288868.571

4,500,000

-211,131

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (5 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Intermediate Job PV Factor Net Cash Inflow Present Value

(i=20%)

2012 (n=1) 0.833 $ 1,790,250.00 1491278.25

2013 (n=2) 0.694 $ 2,002,000.00 1389388

2014 (n=3) 0.579 $ 1,270,500.00 735619.5

3616285.75

3,600,000

16,286

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (4 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Intermediate Job PV FactorNet Cash InflowPresent Value

(i=20%)

2012 (n=1) 0.833 $ 1,790,250.001491278.25

2013 (n=2) 0.694 $ 2,002,000.001389388

2014 (n=3) 0.579 $ 1,270,500.00735619.5

3616285.75

3,600,000

16,286

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (4 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Deep Job PV Factor Net Cash Inflow Present Value

(i=20%)

2012 (n=1) 0.833 $ 1,760,000.00 1466080

2013 (n=2) 0.694 $ 1,760,000.00 1221440

2014 (n=3) 0.579 $ 2,765,714.29 1601348.571

4288868.571

4,500,000

-211,131

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (5 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Deep Job PV FactorNet Cash InflowPresent Value

(i=20%)

2012 (n=1) 0.833 $ 1,760,000.001466080

2013 (n=2) 0.694 $ 1,760,000.001221440

2014 (n=3) 0.579 $ 2,765,714.291601348.571

4288868.571

4,500,000

-211,131

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (5 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Both Jobs NPV PV Factor Net Cash Inflow Present Value

(i=20%)

2012 (n=1) 0.833 $ 3,873,000.00 3226209

2013 (n=2) 0.694 $ 4,104,000.00 2848176

2014 (n=3) 0.579 $ 4,403,142.86 2549419.714

8623804.714

7,200,000

1,423,805

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (8 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Both Jobs NPV PV FactorNet Cash InflowPresent Value

(i=20%)

2012 (n=1) 0.833 $ 3,873,000.003226209

2013 (n=2) 0.694 $ 4,104,000.002848176

2014 (n=3) 0.579 $ 4,403,142.862549419.714

8623804.714

7,200,000

1,423,805

Present value of each years

net cash inflows discounted at 20%

Total Net present value of net cash inflows

Investment (8 drills)

Net present value of the project

p= 1/(1+i)to the power of n

Intermediate Job

Gross Margin:

30%

total

2012 2013 2014

revenue $ 8,137,500.00 $ 9,100,000.00 $ 5,775,000.00 $ 23,012,500.00

total direct (shift) costs $ 5,696,250.00 $ 6,370,000.00 $ 4,042,500.00 $ 16,108,750.00

gross margin $ 2,441,250.00 $ 2,730,000.00 $ 1,732,500.00 $ 6,903,750.00

overhead $ 651,000.00 $ 728,000.00 $ 462,000.00 $ 1,841,000.00

ebit $ 1,790,250.00 $ 2,002,000.00 $ 1,270,500.00 $ 5,062,750.00

ebit as % 0.22 0.22 0.22 0.22

gross margin as % – – – 30%

Bid Price

Revenue $ 23,012,500.00 Calculate ROI

Cost of equipment for job $ 3,600,000.00

ROI 41%

Deep Job

Gross Margin:

30%

total

2012 2013 2014

revenue $ 8,000,000.00 $ 8,000,000.00 $ 12,571,428.57 $ 28,571,428.57

total direct (shift) costs $ 5,600,000.00 $ 5,600,000.00 $ 8,800,000.00 $ 20,000,000.00

gross margin $ 2,400,000.00 $ 2,400,000.00 $ 3,771,428.57 $ 8,571,428.57

overhead $ 640,000.00 $ 640,000.00 $ 1,005,714.29 $ 2,285,714.29

ebit $ 1,760,000.00 $ 1,760,000.00 $ 2,765,714.29 $ 6,285,714.29

ebit as % 0.22 0.22 0.22 0.22

gross margin as % – – – 30%

Bid Price

Revenue $ 28,571,428.57 Calculate ROI

Cost of equipment for job $ 4,500,000.00

ROI 40%

Both Jobs

Both Jobs

Gross Margin:

30%

total

2012 2013 2014

revenue $ 16,137,500.00 $ 17,100,000.00 $ 18,346,428.57 $ 51,583,928.57

total direct (shift) costs $ 11,296,250.00 $ 11,970,000.00 $ 12,842,500.00 $ 36,108,750.00

gross margin $ 4,841,250.00 $ 5,130,000.00 $ 5,503,928.57 $ 15,475,178.57

overhead $ 968,250.00 $ 1,026,000.00 $ 1,100,785.71 $ 3,095,035.71

ebit $ 3,873,000.00 $ 4,104,000.00 $ 4,403,142.86 $ 12,380,142.86

ebit as % 0.24 0.24 0.24 0.24

gross margin as % – – – 30%

Bid Price Calculate ROI

Total Revenue $ 51,583,928.57 Cost of equipment for job $ 7,200,000.00

ROI 72%

Both Jobs

Gross Margin:

30%

total

20122013 2014

revenue $ 16,137,500.00 $ 17,100,000.00 $ 18,346,428.57 $ 51,583,928.57

total direct (shift) costs $ 11,296,250.00 $ 11,970,000.00 $ 12,842,500.00 $ 36,108,750.00

gross margin $ 4,841,250.00 $ 5,130,000.00 $ 5,503,928.57 $ 15,475,178.57

overhead $ 968,250.00 $ 1,026,000.00 $ 1,100,785.71 $ 3,095,035.71

ebit $ 3,873,000.00 $ 4,104,000.00 $ 4,403,142.86 $ 12,380,142.86

ebit as % 0.240.24 0.240.24

gross margin as % – – –

30%

Bid Price Calculate ROI

Total Revenue $ 51,583,928.57Cost of equipment for job $ 7,200,000.00

ROI

72%

Get a 10 % discount on an order above $ 200
Use the following coupon code :
theRUSH

Order Now

We Guarantee

satisfaction-guaranteed

Our Benefits

  • 100% plagiarism FREE
  • Guaranteed Privacy
  • FREE bibliography page
  • Fully referenced
  • Any citation style
  • 275 words per page
  • FREE amendments