The case describes the company's decision to make the textile BurMills as to whether to move from the production of its steam outsourcing their production of steam for Intrinergy. BurMills can calculate the present value of the costs of the three alternatives: to produce their own steam from natural gas combustion, outsourcing Intrinergy either a fixed price contract, or the contract price, which floats to the price of natural gas at Henry Hub. In addition to the standard costs associated with steam case adds depth, providing an opportunity to profit from carbon credits. These credits are earned, because the energy in the plant Intrinergy created from biomass. Proper analysis will include Monte Carlo simulation based on arithmetic random walks for carbon credit prices, arithmetic average returns random walk on the Henry Hub natural gas prices are still, and other distributions. (Student tables are available to accompany this case.) "Hide
by Samuel E injuries, Brandon Ogilvie, Brett Brohl Source: Darden School of Business 6 pages. Publication Date: January 14, 2010. Prod. #: UV4312-PDF-ENG
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