Running Head: PROJECT EVALUATION Project Evaluation Your Name School Contents INTRODUCTION 3 ANALYSING THE FEASIBILITY OF THE PROJECT 3 JUSTIFICATION ABOUT THE METHOD USED TO EVALUATE THE PROJECT 4 OTHER FACTORS THE COMPANY MIGHT CONSIDER 6 CONCLUSION 7 Reference List 9 Appendix 10 INTRODUCTION This report analyses one of the projects that Salsbury is analyzing to invest…
The other option that Salsbury has is to open a health and fitness complex and it has a NPV of ?700,000. Furthermore, the report justifies the technique that has been used in order to evaluate the project by comparing it with other project evaluation techniques such as Accounting Rate of Return and Profitability Index. Moreover, the report then discusses other factors that the organization needs to consider while making the investment decision. ANALYSING THE FEASIBILITY OF THE PROJECT Net present value (NPV) is the technique that has been used to analyze the feasibility of the project. NPV shows the net future cash flows of the project after being discounted with the discount rate so that the present value or present worth of the cash flows can be calculated (McLaney, 2009). In the appendix 1 of the report, the forecasted cash flows for the 10 years are calculated and net present value of these cash flows are calculated with the discount rate of 14%. ...
is higher than health and fitness complex, therefore the management should invest in opening a retail store than the health and fitness complex as it has higher NPV and projects with higher NPV should be accepted (Jensen, 2001). JUSTIFICATION ABOUT THE METHOD USED TO EVALUATE THE PROJECT The management has used Net Present Value method to evaluate whether the project is feasible or not. Although there are different project appraisal techniques such as Accenting Rate of Return (ARR), Payback Period, Profitability Index, Benefit to Cost Ratio (BCR), Internal Rate of Return and discounted payback period etc. However, the report discusses two of these techniques; ARR ad Profitability Index and compares these two techniques with NPV and justifies why NPV is a good method used to evaluate the feasibility of the project. NPV and Accounting Rate of Return Accounting Rate of Return (ARR) is the average return that the project would yield throughout its time period (Gitman, 2003). It can be calculated using the formula below: By using the above formula, ARR of the project is 27.24% It is better to use NPV than Accounting Rate of Return (ARR) as the NPV discounts the future cash flows whereas the ARR does not consider the time value of money. Therefore it is better for the management to use NPV as it will show the real value or worth of the project by considering the discount rate and even inflation rate but these rates are not considered by using the ARR. NPV and Profitability Index The other method that has been used to evaluate the feasibility of the project is the profitability index. Profitability index is calculated by following formula: The formula shows that profitability index considers the time value of money which accounting rate of return does not. Therefore it ...
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(Project Evaluation Math Problem Example | Topics and Well Written Essays - 1250 Words)
“Project Evaluation Math Problem Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.net/finance-accounting/76825-project-evaluation.
1. From the given data, it can be seen that Project ‘p’ has a higher NPV as compared to Project ‘q’. Hence, if NPV is chosen as the criterion, Project ‘p’ must be preferred. However, it is also seen that Project ‘q’ has a higher IRR. Thus, form IRR point of view ‘q’ is the preferred project.
As the capital expenditure is marked in negative, the NPV is computed by adding the Capital Expenditure to the summation of the PVs of the ten cash flows.
The deduction of the capital expenditure value from the summation of the above mentioned PVs gives us the project’s NPV which is equal to 57.
From the research it is clear that probabilistic risk analysis (PRA) or quantitative risk analysis (QRA) or probabilistic safety analysis (PSA) is one of the most used methods of analysing risk in project development and operation. The use of this technique supports and validates the improvement of control and mitigation measures against threats.
As this investment would be required in some future time, therefore the future value of the investment will be calculated. Future value shows the future worth of the money invested today after some specific period of time (Ross, Westerfield, and Jordan, 2009).
The company also risks uneven cash flow as a result of bad weather, which slows down construction schedules. The company will experience challenges due to increases of prices and shortage of major raw materials used in the manufacturing of building materials; this exposes the company to the risk of running out of supplies and ultimate reduction in profit margin.
Advertising expense has been classified as discretionary cost as it is among the expenses that are fixed but can be altered in the short term by current management decisions. For example, the company can reduce its cost by spending less on advertising or going for a less expensive option in a budget year.
She has excellent curriculum vitae with a high grade point average and a strong record of campus participation in clubs and activities.
As a result, she has had a number of good interviews with various companies. She now has
In connection to this the main aim of this project is to use MCDA to solve the problem.
For the last 10 year Bernard has wanted to own a home. After discussing with his wife, they decided to take a mortgage. But now the problem is, he does not
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