Option = D (for Prof. Schwartz… disregard) Buccaneer Energ…
Option = D (for Prof. Schwartz… disregard) Buccaneer Energy is a private electricity provider. Buccaneer has two electricity generation plants in the Tampa Bay area = each of which provides electricity service exclusively to a very large data warehouse and cloud computing customer (these sites require massive amounts of electricity to operate). Buccaneer is assessing the possibility of a malfunction of the generator at its 50 mega-watt Tampa, FL power plant. If a generator malfunctions, it needs to be manually restarted, which will cause an interruption of electricity service to the data warehouse customer utilized by that power plant = TB Data Inc. Based on the historical experience of the power plant, the Risk Manager was able to perform a quantitative analysis to derive the following information on the likelihood of an interruption of electricity service in any given day, for the 50 mega-watt Tampa power plant: The probability of no service interruption in any given day = 80% The probability of a service interruption of 1 hour = 15% The probability of a service interruption of 2 hours = 4.5% The probability of a service interruption of 10 hours = 0.5% Per the terms of the exclusive service contract with TB Data Inc. > each hour there is an interruption of electricity service = $25,000 is taken off of that month’s electricity bill. (i.e. = every hour there is a service interruption = $25,000 financial consequence for Buccaneer Energy) Part A: [3 points] From the perspective of Buccaneer Energy: calculate the Expected Value of the financial consequence from an interruption of electricity service to its customer TB Data Inc. (round to the nearest whole number!!!) (even though you are calculating a “loss” > keep your expected value calculation in POSTIVE numbers) (type your answer in number format > meaning no symbols ($), no commas, no decimals) ANSWER: Expected Value of the financial consequence from an interruption of electricity service to TB Data Inc. = [EXPVAL] Part B: [2 points] Based on the same historical experience of the Tampa power plant; the Risk Manager has also calculated the following in regard to the interruption of electricity service to TB Inc. The variance of the financial consequence from an interruption of electricity service to its customer TB Data Inc. = 466,171,281 Take the variance as FACT (you do NOT need to calculate it) From the perspective of Buccaneer Energy: calculate the Standard Deviation of the financial consequence from an interruption of electricity service to its customer TB Data Inc. (round to the nearest whole number!!!) (type your answer in number format > meaning no symbols ($), no commas, no decimals) ANSWER: Standard Deviation of the financial consequence from an interruption of electricity service to TB Data Inc. = [STDDEV] Part C: [5 points] Buccaneer Energy has another large data warehouse client, located in St. Petersburg, FL: Pete Data Inc. Buccaneer is also assessing the possibility of a malfunction of the generator at its smaller 25 mega-watt St. Petersburg, FL power plant. Just like the Tampa power plant, if a generator malfunctions it needs to be manually restarted, which will cause an interruption of electricity service to Pete Data Inc. Based on the historical experience of the power plant, the Risk Manager was able to perform a quantitative analysis to derive the following information on the likelihood of an interruption of electricity service in any given day, for the 25 mega-watt St. Petersburg power plant: The Expected Value of the financial consequence from an interruption of electricity service to its customer Pete Data Inc. = $3,750 The Standard Deviation of the financial consequence from an interruption of electricity service to its customer Pete Data Inc. = $12,938 (Take these calculations as FACT… meaning you do NOT need to calculate them) The CEO of Buccaneer Energy wants to know which of these two power plants provides the most reliable service to its customer. In terms of the key measure of objective risk (the key measure of volatility) > which power plant, Tampa or St. Petersburg, faces more uncertainty in terms of financial consequence from an interruption of electricity service to its customer? (i.e. = which power plant should the CEO be more “uncertain” about its performance? Tampa? or St. Petersburg?) ANSWER for Tampa Power Plant: NUMERICAL VALUE for KEY Measure of Objective Risk = [COVTampa] (Round to TWO decimal places) (type your answer in number format > meaning no symbols ($), no commas) ANSWER for St. Petersburg Power Plant: NUMERICAL VALUE for KEY Measure of Objective Risk = [COVSTP] (Round to TWO decimal places) (type your answer in number format > meaning no symbols ($), no commas) FINAL ANSWER: Which power plant faces the MOST risk objectively, in terms of the financial consequence from an interruption of electricity service to its customer? = [FINALANSWER] Simply type the NUMBER (1, 2, 3, or 4) of your choice: Tampa Power Plant St. Petersburg Power Plant Tampa Power Plant and St. Petersburg Power Plant face the same amount of risk objectively Cannot be determined
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