Assignment 1

Assignment #1 – S18

1. Two new software projects are proposed to a young, start-up company. The Alpha project will

cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The Beta

project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000.

The company is very concerned about their cash flow. Using the payback period, which project

is better from a cash flow standpoint? Why? Show your calculations.

2. You are the head of the project selection team at ZIMS. Your team is considering three

different projects. Based on past history, ZIMS expects at least a rate of return of 12%.

Inflation is expected to be 3% and risk for all three projects a further 5%.

Given the following information for each project, which one should be ZIMS first priority?

Should ZIMS fund any of the other projects? If so, what should be the order of priority based

on return on investment? Show how you got to your answer.

Project name: Alpha

Year Outflows Inflows

Net Flow

Discount factor

NPV

0 $500,000

1 $50,000

2 $250,000

3 $350,000

Project name: Beta

Year Outflows Inflows

Net Flow

Discount factor

NPV

0 $250,000

1 $75,000

2 $75,000

3 $75,000

4 $50,000

Project name: Delta

Year Outflows Inflows

Net Flow

Discount factor

NPV

0 $500,000

1 $15,000

2 $25,000

3 $50,000

4 $50,000

5 $150,000

3. Piet’s Bike Company has set up a weighted scoring matrix for evaluation of potential projects.

There are five projects under consideration.

a. Using the scoring matrix below, which project would you rate the highest and lowest?

b. If the weighting for ‘Strong Sponsor’ is changed from 2.0 to 5.0, will the project selection

change? What are the three highest weighted project scores with the new weighting?

c. Why is it important that weightings mirror critical strategic factors?