1. Proust Manufacturing Co. produces personal fitness machines. The once successful line is no longer selling well, so the company is considering production of a new improved cardio-vascular machine. This can be done by buying needed production equipment. The after tax cash flow for buying this equipment is $700,000, at the beginning of Year 0. The alternative to produce the same output, is tolease that same equipment through four equal payments of $185,000 each year paid at the beginning of the year. The required rate of return (hurdle rate) for this business is 12 percent. Assume no taxes. Revenue from sales of the new cardiovascular machines is expected to be:

• Year 1 - $375,000
• Year 2 - $250,000
• Year 3 - $140,000
• Year 4 - $75,000

Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for Proust and justify your answer.

Final Exam

Multiple choice -8 points each

1. An "integrated" project management approach is one that:
   1. Develops new products with the use of multi-functional teams
   2. Exposes the front-loading of baselines
   3. Allows the project to equate the defined scope with authorized resources, both within the master schedule
   4. Focuses on performance that falls outside of a predetermined baseline

1. The three dimensions of performance in Earned Value Project Management are:
2. Actual Cost, Earned Value, and Schedule Variance
3. Actual Cost, Earned Value, and Planned Value
4. Actual Cost, Planned Value, and Scheduled Variance
5. Cost Variance, Planned Value, and Schedule Variance

1. At some point in the life of a project, the project manager determined the following data on a $1,250,000 authorized budget project: amount of earned value $350,000.At that point, the value of the planned work was $750,000, and actual cost was $750,000. Based on this information, the Schedule Performance Index for this project was:
   1. 0.28
   2. 0.47
   3. 0.53
   4. 0.60

1. Using the data provided in Question No. 3 above, and assuming a linear cost function, the project manager can estimate that actual cost of the project would be closest to (figures rounded to nearest hundred thousand):
2. $4,500,000
3. $2,700,000
4. $2,400,000
5. $2,100,000

1. Using Earned Value Management in projects, multi-functional control account plans should have:
   1. A Precise Scope of work, a Schedule, a Budget, and a CAP Manager
   2. A point of Management control from WBS, Homogenous Work scope, Multiple Functions, and Earned Value Performance Measured
   3. Organizational Breakdown Structure, Work Breakdown Structure,Control Account Plans, and Points of Management Control