Question
MPM 581 Basic Project Financial Management & Cost Estimating Tools Practical Examples Workshop 1 Please carry out the following basic tasks to give you some
MPM 581 Basic Project Financial Management & Cost Estimating Tools
Practical Examples Workshop 1
Please carry out the following basic tasks to give you some practical insight into the use of common project financial management and cost estimating tools and techniques.
EXERCISE 1) Establish project payback time
Example Project:
Initial investment in Year 0 $34000
Payback Year 1 $11780 ($34000 - $11780) $ 22220 left to pay
Year 2 $14760 ($22220 - $14760) $7460 left to pay
Year 3 $11680 ($7460/$11680) 0.64
The investment will be paid back in 2.64 years (in approximately the month of July 0.64x12 =7.68)
Your task is to analyse the following four projects and determine which one will achieve payback the fastest.
Project 1
|
YEAR | PROJECT A |
| 0 | 16000 |
| 1 | 4600 |
| 2 | 5300 |
| 3 | 7000 |
| 4 | 5500 |
Project 2
|
YEAR | PROJECT B |
| 0 | 22000 |
| 1 | 12400 |
| 2 | 9000 |
| 3 | 9570 |
| 4 | 10100 |
Project 3
|
YEAR | PROJECT C |
| 0 | 31400 |
| 1 | 12600 |
| 2 | 8400 |
| 3 | 14480 |
| 4 | 10300 |
Project 4
|
YEAR | PROJECT D |
| 0 | 12500 |
| 1 | 4200 |
| 2 | 3890 |
| 3 | 6000 |
| 4 | 5800 |
Which project will achieve payback in the fastest time?
Answer
EXERCISE 2) Cost Benefit Analysis
Compare the following projects to decide which is the best in terms of cost/benefit;
| Project Parameters | Project 1 | Project 2 |
| Project Duration (Years) | 3 | 2 |
| Total units to be constructed | 500 | 400 |
| Units for sale | 400 | 350 |
| Units for rent | 100 | 50 |
| Rental period of units (years) | 20 | 15 |
| Units for sale after rental period | 100 | 50 |
| Construction cost for each unit | 100000 | 90000 |
| Sales office cost | 2000000 | 3000000 |
| Sales personnel cost per year | 300000 | 250000 |
| Financing cost per year | 3000000 | 2500000 |
| Sale price of each unit | 120000 | 135000 |
| Sale price of each unit after rental period | 70000 | 80000 |
| Rental price of each unit per year | 4000 | 4500 |
Cost Calculations
| Project Costs | Project 1 | Project 2 |
| Construction cost |
|
|
| Sales office cost |
|
|
| Sales personnel cost |
|
|
| Financing cost |
|
|
| TOTAL |
|
|
Benefit Calculations
| Project Benefits | Project 1 | Project 2 |
| Income from sales |
|
|
| Income from sales after rental period |
|
|
| Income from rentals |
|
|
| TOTAL |
|
|
Costs and Benefits Comparison
| Comparison | Project 1 | Project 2 |
| Benefits |
|
|
| Cost |
|
|
| Profit |
|
|
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