Project Management for Engineers Assignment

University of Technology, Jamaica

Question 1
Two new software projects are proposed to a young, start-up company. The Alpha project will cost
$150,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost
$200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very
concerned about their cash flow. Using the payback period, which project is better from a cash flow
standpoint? Why?
Results
Payback Period (yrs) = (Project Investment Cost)/(Net Annual Cash Flow)
Therefore,
Pay Period(Project A) = $150,000/$40,000 = 3.75 yrs
Pay Period(Project B) = $200,000/$50,000 = 4 yrs
Project Alpha has the better payback because it take less time to rcover the project investment.

Question 2
A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in
the next five years. It will cost $50,000 to implement the project. If the required rate of return is 20
percent, conduct a discounted cash flow calculation to determine the NPV.
Results

Rate = 20%
T = 5yrs

Find the NPV.

To calc we must find the PV for each CF.
PV1 = 15000/(1+0.2)1 = $ 12,500.00
PV2 = 25000/(1+0.2)2 = $ 17,361.11
PV3 = 30000/(1+0.2)3 = $ 17,361.11
PV4 = 20000/(1+0.2)4 = $ 9,645.06
PV5 = 15000/(1+0.2)5 = $ 6,028.16
Therefore,
NPV = -$50,000 + $12,500.00 + $17,361.11 + $17,361.11 + $9,645.06 + $6,028.16
NPV = $12,895.44
Project is acceptable since it has a postive NPV.

Question 3
You are the head of the project selection team at Broken Arrow records. Your team is considering three
different recording projects. Based on past history, Broken Arrow expects at least a rate of return of 20
percent. Your financial advisors predict inflation to remain at 2 percent into the foreseeable future. Given
the following information for each project, which one should be Broken Arrows first priority? Should
Broken Arrow fund any of the other projects? If so, what should be the order of priority based on return
on investment?
Results
For each Project we must calculate the PV for each cash flow and then find the NPV.
The expected rate of return/yr = 20%
Inflation/yr = 2%
There the rate of return for discount is 22%.
Recording Project: Time Fades Away
Year
0
1
2
3
4
5

Inflows

$600,000.00
$75,000.00
$20,000.00
$15,000.00
$10,000.00

Outflows

Cash flow

$600,000.00 ($600,000.00)
$600,000.00
$75,000.00
$20,000.00
$15,000.00
$10,000.00

Discount
Factor
1.00
0.82
0.67
0.55
0.45
0.37

NPV
($600,000.00)
$491,802.00
$50,389.50
$11,014.00
$6,771.00
$3,700.00
Total:
($36,323.50)

Recording Project: On the Beach

Year
0
1
2
3
4
5

Inflows

$400,000.00
$100,000.00
$25,000.00
$20,000.00
$10,000.00

Outflows

Cash flow

$400,000.00 ($400,000.00)
$400,000.00
$100,000.00
$25,000.00
$20,000.00
$10,000.00

Discount
Factor
1.00
0.82
0.67
0.55
0.45
0.37

NPV
($400,000.00)
$327,868.00
$67,186.00
$13,767.50
$9,028.00
$3,700.00
Total:
$21,549.50
4

Recording Project: Tonights the Night

Year
0
1
2
3
4
5

Inflows

$200,000.00
$125,000.00
$75,000.00
$25,000.00
$10,000.00

Outflows

Cash flow

$200,000.00 ($200,000.00)
$200,000.00
$125,000.00
$75,000.00
$25,000.00
$10,000.00

Discount
Factor
1.00
0.82
0.67
0.55
0.45
0.37

NPV
($200,000.00)
$163,934.00
$83,982.50
$41,302.50
$11,285.00
$3,700.00
Total:
$104,204.00

Broken Arrows first priority should be Tonights the Night given that it has the highest NPV as well as
ROI. The other project Broken Arrow could fund is On the Beach. Given that the project Time Fades
Away is negative it has not been considered.

Question 4

There two projects, A and B, with the following cash flows. The discount rate is at 10 percent. Which
project should be selected? Use the IRR method.
Results
Discount Rate = 10%
T=1

Using the discount rate analysis we solve for PV for each project in year 1.
Project A PV now = $1000.00, C1 = $2,100
PV1 = 2100/(1+0.1)1 = $1909.09

To solve for IRR, NPV must be equal to 0.

IRR1 = (1909.09/1000) - 1
= 0.90909 or 90.91%
Project B PV now = $10000.00, C1 = $15,000
PV1 = 15000/(1+0.1)1 = $13,636.36
To solve for IRR, NPV must be equal to 0.
IRR1 = (13,636.36/10000) - 1
= 0.36 or 36.36%
Project A should be selected.

Question 5
Suppose that you were offered the investment shown below at a cost of $800. What is the NPV? IRR?
Use the excel sheet attached to do your work out. Submit the completed sheet.

Results
NPV = $400.78, IRR = 27.28%
Interest rate
Year

12%
0

Cash flow
($800.00)
$157.35
$280.99
$376.32
PV factor
100%
89%
80%
71%
PV of cash flow
($800.00)
$140.49
$224.00
$267.86
Cumulative PV
($800.00) ($659.51) ($435.51) ($167.65)
Net Present Value
$400.78

$448.00
64%
$284.71
$117.06

$500.00
57%
$283.71
$400.78

Year
Cash flow
Discount
Rate

0
(800.00)

1
157.35

2
3
280.99 376.32

4
448.00

5
500.00

NPV
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
27%
28%
30%
32%
34%
36%

846
740
643
555
474
401
333
271
214
161
112
67
(0)
(14)
(50)
(84)
(115)
(144)

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Polar and Phasor plot for antenna elements separated by distance d=/2 & d=/4
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