1.4 criteria selection

Sheet1

PMT472L Week 1 Assignment Template										V2
	Instructions: Fill in the only the yellow fields:
	1. Checklist:				Use an "X" to designate the appropriate performance column.
							Performance on Criteria
		Project A is rated:			Project	Criteria	High	Med	Low
		Payoff potential	high
		Lack of risk	low
		Safety	high
		Competitive advantage	medium
		Project B is rated:
		Payoff potential	low
		Lack of risk	medium
		Safety	medium
		Competitive advantage	medium
		Project C is rated:
		Payoff potential	medium
		Lack of risk	medium
		Safety	low
		Competitive advantage	low
		Project D is rated:			What is the best choice?
		Payoff potential	high		Why?
		Lack of risk	high
		Safety	medium		Which is the worst choice?
		Competitive advantage	medium		Why?
	2. Scoring Model # 1				Scoring Model #1		Importance Weight	Score	Weighted Score
					Project	Criteria
		Importance Weight:
		Payoff Potential	4
		Lack of Risk	3
		Safety	1
		Competitive Advantage	3			Total Score
		Criteria Score:
		High	3
		Medium	2
		Low	1			Total Score
		Tip: Weighted Score = Importance Weight x Score
						Total Score
						Total Score
					What is the best choice?
					Why?
	3. Scoring Model # 2				Scoring Model #2		Importance Weight	Score	Weighted Score
					Project	Criteria
		Importance Weight:
		Payoff Potential	1
		Lack of Risk	1
		Safety	4
		Competitive Advantage	2			Total Score
		Criteria Score:
		High	3
		Medium	2
		Low	1			Total Score
		Tip: Weighted Score = Importance Weight x Score
						Total Score
						Total Score
					What is the best choice?
					Why?
	4. Discount Payback				Set up a discounted cash flow table to calculate the time needed to pay back the initial $50,000 investment.
		Tips:					Discount Factor	New Inflows	Cumulative Cash Flow
		Discount Rate = 15%			Year	Cash Flow
		Discount factor = 1/(1+r)t			0	(50,000)	1.00	(50,000)	(50,000)
		r = discount rate and t = year			1	30,000
		The breakeven year is the last year that the cumulative cash flow is negative.			2	30,000
					3	40,000
					4	25,000
					5	15,000	0.50	7,500	47,050
					In what year will we reach a breakeven point?
	5. Net Present Value
		• Project A: $500,000 invested today will yield an expected income stream of $150,000 per year for 5 years, starting in Year 1.
		• Project B: Investment of $400,000 is expected to produce this revenue stream: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.
		Assume that a required rate of return for your company is 10% and that inflation is expected to remain steady at 3% for the life of the project.
		Tips:			Project A		Discount Factor	New Inflows	Cumulative Cash Flow
		Discount Rate = Rate of Return + Inflation			Year	Cash Flow
		Discount factor = 1/(1+r)t			0	(500,000)	1.00	(500,000)	(500,000)
		r = discount rate and t = year			1	150,000
					2	150,000
					3	150,000
					4	150,000
					5	150,000				< NPV Total
					Project B		Discount Factor	New Inflows	Cumulative Cash Flow
					Year	Cash Flow
					0	(400,000)	1.00	(400,000)	(400,000)
					1	- 0
					2	50,000
					3	200,000
					4	300,000
					5	200,000				< NPV Total
					Which is the better Investment?
					Why?