MGT 552. Project Finance and Budgeting

Assignment 3

You have been hired as a project management consultant to assist the Acme Company in evaluating two different project proposals they are considering.Proposal A calls for the construction of a new plant which will require three years to complete and will have much greater capacity than the old plant.Because the plant will have to be built on the current site, the old plant will have to be razed.Proposal B involves the renovation of this plant.This renovation will require two years to complete, but the plant can remain in operation in a reduced capacity during this upgrade.Once the renovation is complete revenue will be as portrayed in the table below, however annual maintenance will be 50% higher than Proposal A.

Proposal A: Build New Plant

Year1Year2Year3Year4Year5Year6Year7Year8Year9Year10

Revenue 000400800800800800800800

Expense 800 600 60050505050505050

Proposal B: Renovate Existing Plant

Year1Year2Year3Year4Year5Year6Year7Year8Year9Year10

Revenue 100 100350350350350350350350350

Expense 500 5007575757575757575

Questions:

a.What is the profit associated with the project carried out in Proposal A? Proposal B?

b.When does payback occur on the project carried out in Proposal A? Proposal B?

c.What is the present value of revenue for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

d.What is the present value of expense for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

e.What is net present value for the project described in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

f.What is the internal rate of return for the project described in Proposal A? Proposal B?

g.Which project would you recommend?Why?What are the merits?What are the risks?

HOW IN THE WORLD DO I ANSWER STARTING AT CjQuery22407007211622313227_1613705385403?? I HAVE GOOGLED FAR AND WIDE AND CANNOT FIGURE OUT WHAT NUMBERS TO EVEN USE. ABOUT TO QUIT THIS CLASS ahhhhhhh