Question
* Describe the main characteristics of a project and briefly describe the important features of each. Unique One-time occurrence Finite duration Interdependencies Limited resources Conflict
* Describe the main characteristics of a project and briefly describe the important features of each.
- Unique
- One-time occurrence
- Finite duration
- Interdependencies
- Limited resources
- Conflict
* What is a sacred cow? Give some examples.
* Yazan company has three potential projects all with an initial cost of $1500. The board of directors will accept only one of the three projects. Given the discount rate and the future cash flows of each project, which project should Yazan accept?
Years | project A | Project B | Project C |
Year 1 | $600 | $600 | $500 |
Year 2 | $650 | $700 | $650 |
Year 3 | $700 | $750 | $800 |
DISCOUNT RATE | 10% | 10% | 8% |
- Find NPV for project A
- Find NPV for project B
- Find NPV for project C
- Which project should they select?
* Petra Engineering Ltd. is considering the purchase of a new machine tool to replace four old machines. The new machine will cost 150,000 and is expected to last five years, after which it is expected to realise a scrap value of 10,000.
Additional dedicated tooling for the new machine will cost a further 25,000. A maintenance contract will be taken out to cover the machine at a cost of 10,000 per annum. The maintenance of the additional dedicated tooling will be done in-house at an estimated cost of 5,000 per year. A new machine. programmer/operator will be recruited at a cost of 20,000 per year.
The benefits expected from the new machine: The machine will include the scrap value of the old machines, which is expected to be 5,000 each. The wages of four old machines operators of 17,000 per annum each employee, plus the cost of a maintenance fitter at 18,000 per annum for all, can also be considered as a benefit. A further saving of 10,000 per year in reduced scrap/rework costs should also be realised.
Evaluate the proposed investment using the following techniques: -
a) Payback
c) Net Present Value
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