You are the head of project selection for Broken Arrow Records (BAR). Your team is considering three new projects, each with a unique sound and style. Based on past history, management requires a 20% rate of return. Additionally, they have allocated $1 million toward the production of these albums. Finally, management wants you to find new talent without taking risks. So, give the following weights to projects; New Artist = 10, Risk = 6, Genre = 3, Diversity = 2 Given the following information about each project, prioritize each project. That is, put them in order of which BAR should do first, second, and third; money permitting, of course. Note: You will use the Project Selection Matrix, the Payback Period, and the NPV to make your decision. 1. Project: Time Fades Away New Artist: 10 Risk: -10 Genre: 7 Diversity: 3 Year Investment Revenue 0 $600,000.00 $0.00 1 $0.00 $500,000.00 2 $0.00 $75,000.00 3 $0.00 $20,000.00 4 $0.00 $15,000.00 5 $0.00 $10,000.00 2 2. Project: Tears in the Rain New Artist: 5 Risk: -5 Genre: 9 Diversity: 2 Year Investment Revenue 0 -$400,000.00 $0.00 1 $0.00 $400,000.00 2 $0.00 $100,000.00 3 $0.00 $25,000.00 4 $0.00 $20,000.00 5 $0.00 $10,000.00 3. Project: On the Beach New Artist: 2 Risk: -2 Genre: 3 Diversity: 2 Project: On the Beach Year Investment Revenue 0 -$200,000.00 $ 1 $ $275,000.00 2 $ $75,000.00 3 $ $10,000.00 4 $ $7,500.00 5 $ $1,500.00 Broken Arrow Records Project Development Criteria Project Name Time Fodes Away Tears in the Rain On the Beach Project Attributes and Weights 10 New Artist Risk Genre Diversity Weighted Score 10 -10 7 67 5 -5 9 2 51 2 -2 3 2 21 Payback Period Model TFA TIR OTB Formulas Investment Annual Sales Est. 1 5 5 600.000 500,000 $400.000 5400.000 5 200.000 $ 275,000 Payback instant/Sales Rate of Ritum=1/Payback Period Payback period 120 100 0.73 Rate of Return 833 100 % 115 Acceptable? Yes Yes Yes NOTE: All numbers are based on first year revenue projections only, *Payback period does not take into account the time value of money, **Rate of Return is the inverse of the payback period Net Present Value Model Year 2 TEA Required Rate (Given Outlow 20% $600.000 so 500.000 Net Present Value Model Year 0 20% 2. TFA Required Rate (Given) Outflow Inflow Net NPV $0 $600,000 SO $600,000 $500,000 $500,000 $0 so $75,000 $20,000 $75,000 $20,000 $90.353 $0 $15.000 $15,000 SO $10,000 $10,000 $600.000 $630,000 520.000 0 1 Year 2 20% 5 TIR Required Rate (Given) Outflow Inflow Net NPV $400,000 $0 $400,000 $0 $400,000 $400,000 $0 $100,000 $100,000 $o $25,000 $25,000 $0 $0 $20,000 $10,000 $20,000 $10,000 5400.000 $555.000 5155.000 $25,758 0 1 Year 2 3 5 20% Required Rate (Given) Outflow nflow Vet NPV $200,000 $o $200,000 SO $275,000 $275,000 $0 $75,000 $75,000 $0 $10,000 $10,000 SO $7,500 $7,500 $0 $1,500 $1,500 $200.000 $369.000 $169.000 $76,047 You are the head of project selection for Broken Arrow Records (BAR). Your team is considering three new projects, each with a unique sound and style. Based on past history, management requires a 20% rate of return. Additionally, they have allocated $1 million toward the production of these albums. Finally, management wants you to find new talent without taking risks. So, give the following weights to projects; New Artist = 10, Risk = 6, Genre = 3, Diversity = 2 Given the following information about each project, prioritize each project. That is, put them in order of which BAR should do first, second, and third; money permitting, of course. Note: You will use the Project Selection Matrix, the Payback Period, and the NPV to make your decision. 1. Project: Time Fades Away New Artist: 10 Risk: -10 Genre: 7 Diversity: 3 Year Investment Revenue 0 $600,000.00 $0.00 1 $0.00 $500,000.00 2 $0.00 $75,000.00 3 $0.00 $20,000.00 4 $0.00 $15,000.00 5 $0.00 $10,000.00 2 2. Project: Tears in the Rain New Artist: 5 Risk: -5 Genre: 9 Diversity: 2 Year Investment Revenue 0 -$400,000.00 $0.00 1 $0.00 $400,000.00 2 $0.00 $100,000.00 3 $0.00 $25,000.00 4 $0.00 $20,000.00 5 $0.00 $10,000.00 3. Project: On the Beach New Artist: 2 Risk: -2 Genre: 3 Diversity: 2 Project: On the Beach Year Investment Revenue 0 -$200,000.00 $ 1 $ $275,000.00 2 $ $75,000.00 3 $ $10,000.00 4 $ $7,500.00 5 $ $1,500.00 Broken Arrow Records Project Development Criteria Project Name Time Fodes Away Tears in the Rain On the Beach Project Attributes and Weights 10 New Artist Risk Genre Diversity Weighted Score 10 -10 7 67 5 -5 9 2 51 2 -2 3 2 21 Payback Period Model TFA TIR OTB Formulas Investment Annual Sales Est. 1 5 5 600.000 500,000 $400.000 5400.000 5 200.000 $ 275,000 Payback instant/Sales Rate of Ritum=1/Payback Period Payback period 120 100 0.73 Rate of Return 833 100 % 115 Acceptable? Yes Yes Yes NOTE: All numbers are based on first year revenue projections only, *Payback period does not take into account the time value of money, **Rate of Return is the inverse of the payback period Net Present Value Model Year 2 TEA Required Rate (Given Outlow 20% $600.000 so 500.000 Net Present Value Model Year 0 20% 2. TFA Required Rate (Given) Outflow Inflow Net NPV $0 $600,000 SO $600,000 $500,000 $500,000 $0 so $75,000 $20,000 $75,000 $20,000 $90.353 $0 $15.000 $15,000 SO $10,000 $10,000 $600.000 $630,000 520.000 0 1 Year 2 20% 5 TIR Required Rate (Given) Outflow Inflow Net NPV $400,000 $0 $400,000 $0 $400,000 $400,000 $0 $100,000 $100,000 $o $25,000 $25,000 $0 $0 $20,000 $10,000 $20,000 $10,000 5400.000 $555.000 5155.000 $25,758 0 1 Year 2 3 5 20% Required Rate (Given) Outflow nflow Vet NPV $200,000 $o $200,000 SO $275,000 $275,000 $0 $75,000 $75,000 $0 $10,000 $10,000 SO $7,500 $7,500 $0 $1,500 $1,500 $200.000 $369.000 $169.000 $76,047
