Project Control
nagreene4
Lakehouse.docxCalculations
1. Net present value
Estimated investment of the lake house project is $40,000. After completion and once tenants move in, the expected returns from the lake house are $5,000, $8,000, and $10,000. The appropriate rate of return is 9%. Calculation of net present value is as follows:
NPV= (5000÷(1+0.09)^1)+(8000÷(1+0.09)^2)+(10000÷(1+0.09)^3)-40000
=4587.16+6733.44+7721.83
=$19,042.43
2. Pay back period
Total project investment budget is $40,000
Annual cash flow is expected to be $10,000
Pay back period is 40000÷10000= 4 years
3. Cost benefit analysis
Increase in revenue by 30% when new construction materials get sourced
Payment of workers=$15000
Materials cost =$10000
Training =$5000
Total direct and indirectly costs are 15000+10000+5000=$30000
Increase in revenue can get estimated at $50000
The benefit-cost ratio produces 50000÷30000=1.66
The value is positive and there would be an increase in revenue. Thus purchase of new material would offer better outcomes.
4. Benefit-cost ratio (BCR)
The lake house project gets conducted by leasing equipment for $10,000. The BCR shall be NPV÷cost of leasing
19042.43÷10000=1.904
The positive value of BCR indicates that the benefits are far much better than internal costs.
Rationale for Recommendations
Calculation of NPV is an initial factor required to determine how the project would be viable in the future. Thelake house project shall involve different cnstructors and equipment selected for different stages in the project. As such, the proper method of understanding the lake project's capability of generating profits requires the NPV. NPV gets used as an analysis tool to implement effective capital budgeting processes for the project getting studied (Jagerson, 2021). Since the final calculation indicated that the NPV was a positive value, it was thus easy to finalize the idea that the project’s viability would get guaranteed. Having positive and reliable cash flows in the project is an effective method of handling the project’s improvement as it indicates how the project correlates with different goals.
