Mgt 252 Module 4 Exercises

Mgt252 Module4 Exercises

A project selection committee is comparing two proposals to see which proposal itwill support.

Proposal A is for a project that will require theenterprise toinvest itsown money over a three year period of time. Itis estimated thatin Years 4,5,and 6, the company can generate revenues fromthe deliverable produced by the project in themanner described in thetable below.

Proposal Bis fora cost-reimbursable contracted project executed for a client. Expenses are reimbursed as the project is carried out, so it requires little upfrontinvestment by the enterprise.

Proposal A: Self-fundedProject

Proposal B: Contracted,Cost-Reimbursable Project

Assignment

1.  Whatistheprofitassociated with the project carried out in Proposal A?

Proposal B?

2.  When doespayback occur on the projectcarried out in Proposal A? Proposal

B?

3.  Whatis the present value ofrevenue for the project carried out in Proposal A?

Proposal B?(Incomputing present value, do notdiscount thevalue forthe firstyearbeing examined. Assume i = .08)

4.  Whatisthepresent value of expense for the projectcarried outin Proposal

A?Proposal B?(Incomputing present value, donotdiscount the value for the firstyearbeing examined.)

5.  What is net present value for the project described in Proposal A? Proposal B? (Incomputing present value, do notdiscount thevalue forthefirstyear being examined.)

6.  Whatistheinternal rateofreturnforthe project described in Proposal A?

Proposal B?

7.  Ifyoucould only support one ofthese projects, which one would it be?

Explain yourrationale.