Course: Project Management

Question 2

A. Paakot Ltd, a lumber processing firm, intends to diversify their investment portfolio. In view of this, management has decided to put up a hostel accommodation facility for university students.

The initial capital outlay required for the project over a two-year period will be a total of $500,000. Paakot Ltd intends to invest $350,000 immediately and the final $150,000 in one years time. Starting from year 2, the project is expected to generate a stream of revenues of $100,000, $120,000, $80,000, $200,000 per year respectively, for the firm. The required rate of return is 15%, and the expected rate of inflation over the life of the project is projected to remain steady at 3%.

A. As a project consultant, you have been contracted by the firm to appraise the viability of the project, Using:

(i) The Simple Payback Method. [8 marks]

(ii) The Net Present Value Method. [8 marks]

(iii) In your opinion, would you advise the firm to go ahead with the project or not? [4 marks]

B. Explain with examples the risks a company is likely to face if it fails to complete a project on time.

[5 marks]

C. Using an appropriate illustration, discuss the scoring model as a project screening model. [5 marks]