Preet Gupta is a Project Manager for ABC consultants. She has been asked to help choose one of the four potential project candidates. The management used Payback period technique for project selection. Which of the following projects should Preet recommend to the management and why?
- Building an apartment. Project involves making an investment of $200,000. After six months, there will be monthly rental returns of $5000.
- Building a bridge. Project involves making an investment of $1,000,000. After two years, there will be monthly returns via toll for the bridge of $50,000.
- Building a house. Project involves making an investment of $500,000. After one year, there will be monthly rental returns of $10,000.
- Building a school. Project involves making an investment of $500,000. After one year, there will be monthly returns via school fees of $50,000
Show your work for all options (4 marks)
Full Justification for Project Selection (10 marks)
2. A project with a 3-year life and a one-time initial cost of $28,000 generates revenues of $8,000 in year 1, $12,000 in year 2, and $17,000 in year 3. If the discount rate is 4%, what is the NPV of the project?
Calculating NPV (5 marks)
Justification for Project Selection (5 marks)
3. BNM Corporation is using weighted scoring model to select one project out of four projects. The importance criteria as well as ratings of four projects are given below. Which of the following projects will be selected and why?
Project weights
| Criteria | Weight | Project A | Project B | Project C | Project D |
| Time to Market | 10% | 6 | 6 | 2 | 4 |
| Availability of resources | 20% | 7 | 4 | 1 | 4 |
| Sales potential | 40% | 1 | 2 | 5 | 5 |
| Fitment with other products | 30% | 5 | 3 | 6 | 5 |
Fill out the following table and resulting weights (4 marks)
| Project A | Project B | Project C | Project D |
Justification for Project Selection (8 marks)
4. PQ Corporation is using Payback period to choose one project out of four options. Which of these projects should be selected by the company and why?
Payback period
| Project Name | Initial investment | Cash inflow per quarter |
| Project A | $200,000 | $10,000 |
| Project B | $100,000 | $2,000 |
| Project C | $400,000 | $80,000 |
| Project D | $500,000 | $125,000 |
Show your work for all options (4 marks)
Justification for Project Selection (8 marks)
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