a2- bdm cheryl

7/27/2019 A2- BDM Cheryl

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3. Project plans

Activity Description Duration

(in days)

Preceding

Activities

Personnel

Required

A Selecting of appropriate showroom design 4 - 1

B Approval of the propose plan and budget

requirements4 - 1

C Hiring of construction personnel 5 A 1

D Clearing the site 4 A 4

E Setting of the floor lay-out 2 B 2

F Purchase of materials 4 B 2

G Prepare the site for construction 2 B 4

H Construction ceremony 1 E 2

I Construct the showroom 15 E 8

J Purchase supplies and fixtures 1 F 1

K Purchase utility equipments 2 G 1

L Install utility equipments 3 G 4

M Install fixtures and decoration 3 DC 4

N Finalizing construction 4 DC 4

O Safety inspection 1 JK 2

P Order the goods to be featured 2 LM 1

Q Setting up the goods 1 N 3

R Conduct test operation 2 H 4

S Turnover to the manager 1 O 1

T Training of staff 4 O 2

U Advertise the opening of showroom 7 P 1

V Selecting event company 1 IQ 1

W Dry-run 1 RS 3

X Initial presentation to company president 1 TUV 2

Y Grand Opening day 1 WX 3

Z Project summary 1 Y 1


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a. Prepare a project plan for an activity


3/18

b. Critical path and durationPath Duration

A+C+N+Q+V+X+Y+Z 4+5+4+1+1+1+1+1= 18

A+C+M+P+U+X+Y+Z 4+5+3+2+7+1+1+1 = 24

A+D+dummy+M+P+U+X+Y+Z 4+4+0+3+2+7+1+1+1 = 23

A+D+dummy+N+Q+V+X+Y+Z 4+4+0+4+1+1+1+1+1 = 17

B+G+L+P+U+X+Y+Z 4+2+3+2+7+1+1+1 = 21

B+G+K+O+T+X+Y+Z 4+2+2+1+4+1+1+1 = 16

B+G+K+O+S+W+Y+Z 4+2+2+1+1+1+1+1 = 13

B+F+J+O+T+X+Y+Z 4+4+1+1+4+1+1+1 = 17

B+F+J+O+S+X+Y+Z 4+4+1+1+1+1+1+1 = 14

B+E+H+R+S+W+Y+Z 4+2+1+2+1+1+1 = 12

B+E+I+V+X+Y+Z 4+2+15+1+1+1+1 = 25

c. The earliest and latest event time The earliest event time

Event 1 : the earliest time is 0

Event 2: Earliest time, event 1 + duration of B = 0 + 4 = 4

Event 3: The earliest time at event 3 = event 1 + duration of A= 0 + 4 = 4

Event 4: The earliest time at event 4 = event 2 + duration of G = 4 + 2 = 6

Event 5: The earliest time at event 5 = event 2 + duration of F = 4 + 4 = 8

Event 6: The earliest time at event 6 = event 2 + duration of E = 4 + 2 = 6

Event 7: The earliest time at event 7 = event 3 + duration of D = 4 + 4 = 8

Event 8: Earliest time, event 4 + duration of K = 6 + 2 = 8

Earliest time, event 5 + duration of J = 8 + 1 = 9

The earliest time at event 8 is 9 daysEvent 9: The earliest time at event 9 = event 6 + duration of H = 6 + 1 = 7

Event 10: Earliest time, event 3 + duration of C = 4 + 5 = 9

Earliest time, event 7 + duration of D = 7 + 0 = 7


4/18

The earliest time at event 10 is 9 days

Event 11: Earliest time, event 10 + duration of M = 9 + 3 = 12

Earliest time, event 4 + duaration of L = 6 + 3 = 9

The earliest time at event 11 is 12 daysEvent 12: The earliest time at event 12 = event 8 + duration of O = 9 + 1 = 10

Event 13: Earliest even time, event 12 + duration of S = 10 + 1 = 11

Earliest even time, event 7 + duration of R = 7 + 2 = 9

The earliest even time at event 13 is 11 daysEvent 14: The earliest time at event 14 = event 10 + duration of N = 9 + 4 = 13

Event 15: The earliest time at event 15 = event 11 + duration of P = 12 + 2 = 14

Event 16: Earliest even time, event 13 + duration of Q = 13 + 1 = 14

Earliest even time, event 6 + duration of I = 6 + 15 = 21

The earliest even time at event 16 is 21 daysEvent 17: Earliest even time, event 16 + duration of V = 21 + 1 = 22

Earliest even time, event 15 + duration of U = 14 + 7 = 21

Earliest even time, event 12 + duration of T = 10 + 4 = 14

The earliest even time at event 16 is 22 daysEvent 18: Earliest even time, event 17 + duration of X = 22 + 1 = 23

Earliest even time, event 13 + duration of W = 13 + 1 = 14

The earliest even time at event 16 is 23 daysEvent 19: The earliest time at event 19 = event 18 + duration of Y = 23 + 1 = 24

Event 20 The earliest time at event 20 = event 19 + duration of Y = 24 + 1 = 25

The latest event timeEvent 20: Latest time is 25

Event 19: Latest time at event 19 = Latest time, event 20duration of Z = 251 = 24

Event 18: Latest time at event 18 = Latest time, event 19duration of Y= 241 = 23

Event 17: Latest time at event 17 = Latest time, event 18duration of X = 231 = 22

Event 16: Latest time at event 16 = Latest time, event 17duration of V = 221= 21

Event 15: Latest time at event 15 = Latest time, event 16duration of U = 227 = 15

Event 14: Latest time at event 14 = Latest time, event 16duration of Q = 211 = 20

Event 13: Latest time at event 13 = Latest time, event 18duration of W = 231 = 22

Event 12: Latest even time, event 17duration of T = 224 = 18

Latest even time, event 13 - duration of S = 221 = 21


5/18

The latest even time at event 12 is 18 days

Event 11: Latest time at event 11 = Latest time, event 15duration of P = 152 = 13

Event 10: Latest even time, event 11 - duration of M = 133 = 10

Latest even time, event 14 - duration of N = 204 = 16

The latest even time at event 10 is 10 daysEvent 9: Latest time at event 9 = Latest time, event 13 duration of R = 222 = 20

Event 8: Latest time at event 8 = Latest time, event 12 duration of O = 181 = 17

Event 7: Latest time at event 7 = Latest time, event 10dummy = 100 = 10

Event 6: Latest time, event 16duration of I = 2115 = 6

Latest event time, event 9duration of H = 201 = 19

The latest even time at event 6 is 6 daysEvent 5: Latest time at event 5 = Latest time, event 8duration of I = 171 = 16

Event 4: Latest even time, event 11 - duration of L = 133 = 10

Latest even time, event 8 - duration of K = 172 = 15

The latest even time at event 4 is 10 daysEvent 3 Latest even time, event 10 - duration of C = 105 = 5

Latest even time, event 7 - duration of D = 104 = 6

The latest even time at event 3 is 5 daysEvent 2: Latest even time, event 6 - duration of E = 62 = 4

Latest even time, event 5 - duration of F = 164 = 12

Latest even time, event 4 - duration of G = 102 = 8

The latest even time at event 2 is 4 daysEvent 1: Latest even time, event 2 - duration of B = 44 = 0

Latest even time, event 3 - duration of A = 54 = 1

The latest even time at event 1 is 0 days Float time


6/18

d. Grantt chart


7/18

4. Use financial tools for decision making

The company estimates its cost of capital is 12% and detail of each project is provided below:

Project 1 Project 2 Project 3 Project 4

Expected life (years) 4 3 5 4

000 000 000 000

Initial cost 600 500 700 400

Expected net cash flows

(excluding the initial cost)

Year 1 10 250 175 18

Year 2 200 250 220 159

Year 3 400 50 250 180

Year 4 50 20 100 120

Year 5 20 - 80 12

Residential value 10 - 15 5

1. Net present value (NPV)There is a formula:

S: The sum to be received after n time periods

X: The present value of that sum

r: The rate of return

n: The number of time periods

r in this position is 0.12

a. Project 1 Year 0: Cash flow = (600,000)

Discount factor =

=

= 1Net present value (NPV0) = (600,000) 1 = (600,000) Year 1: Cash flow = 10,000

Discount factor = = = 0.893


8/18

NPV1 = 10,000 0.893 = 8,930 Year 2: Cash flow = 200,000

Discount factor =

=

= 0.797


Discount factor =

=

= 0.712

NPV3 = 400,000 0.712 = 284,712 Year 4: Cash flow = 50,000 + 10,000 = 60,000

Discount factor =

=

= 0.636

NPV4 = 60,000 0.636 = 38,131 The total of Net Present Value is:

NPV = NPV0 + NPV1 + NPV2 + NPV3 + NPV4

= 600,000 + 8,930 + 159,483 + 284,712 + 38,131

= -108,789

Project 1

Year Cash flow Discount factor 12% Present value

0 (600,000) 1 (600,000)

1 10,000 0.893 8,930

2 200,000 0.797 159,438

3 400,000 0.712 284,712

4 60,000 0.636 38,131

NPV -108,789

Based on the NPV result above, NPV of project 1 is which is negative sothat the project offers a return of less than 12% per year. So the project 1 should not be

undertaken. If a project or an investment opportunity has a negative NPV then it is said to

be earning less than the required rate of return. A negative NPV decreases the value of the

firm and the wealth of the shareholders


9/18

b. Project 2 Year 0: Cash flow = (500,000)

Discount factor =

=

= 1

Net present value (NPV0) = (500,000) 1 = (500,000) Year 1: Cash flow = 250,000

Discount factor =

=

= 0.893NPV1 = 250,000 0.893 = 223,214 Year 2: Cash flow = 250,000

Discount factor =

=

= 0.797


Discount factor =

=

= 0.712

NPV3 = 50,000 0.712 = 35,600

The total of Net Present Value is:NPV = NPV0 + NPV1 + NPV2 + NPV3

= -500,000 + 223,214 + 199,298 + 35,600 = - 41,888

The total Net Present Value (NPV) of project 2 is (41,888) that is negative NPV

because it is less than zero so that this NPV is not acceptable for the company. The company

should have a reasonable adjustment.

Project 2


0 (500,000) 1 (500,000)

1 250,000 0.893 223,214

2 250,000 0.797 199,298

3 50,000 0.712 35,600

NPV -41,888


10/18

c. Project 3 Year 0: Cash flow = (700,000)

Discount factor =

=

= 1

Net present value (NPV0) = (700,000) 1 = (700,000) Year 1: Cash flow = 175,000

Discount factor =

=

= 0.893 NPV1 = 175,000 0.893 = 156,250 Year 2: Cash flow = 220,000

Discount factor =

=

= 0.797


Discount factor =

=

= 0.712


Discount factor = = = 0.636 NPV4 = 100,000 0.636 = 63,551 Year 5: Cash flow = 80,000 + 15,000 = 95,000

Discount factor =

=

= 0.567 NPV4 = 95,000 0.636 = 53,906 The total of Net Present Value is:

NPV = NPV0 + NPV1 + NPV2 + NPV3 + NPV4 + NPV5

= 700,000 + 156,275 + 175,340 + 178,000 + 63,551 + 53,906 = -72,953

Project 3


0 (700,000) 1 (700,000)

1 175,000 0.893 156,250

2 220,000 0.797 175,340


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3 250,000 0.712 178,000

4 100,000 0.636 63,551

5 95,000 0.567 53,906

NPV -72,953

The total NPV of project 3 is which is negative so that the project offers areturn of less than 12% per year. So the project 3 should not be undertaken. If a project or an

investment opportunity has a negative NPV then it is said to be earning less than the

required rate of return. A negative NPV decreases the value of the firm and the wealth of the

shareholders.

d. Project 4 Year 0: Cash flow = (400,000)

Discount factor =

=

= 1Net present value (NPV0) = (400,000) 1 = (400,000)

Year 1: Cash flow = 18,000Discount factor =

=

= 0.893


Discount factor =

=

= 0.797


Discount factor =

=

= 0.712

NPV3 = 180,000 0.712 = 128,160 Year 4: Cash flow = 120,000 + 5,000 = 125,000

Discount factor =

=

= 0.636 NPV4 = 125,000 0.636 = 79,500

The total of Net Present Value is:NPV = NPV0 + NPV1 + NPV2 + NPV3 + NPV4


12/18

= 400,000 + 16,074 + 126,723 + 128,160 + 79,500

= - 49,543

Project 4


0 (400,000) 1 (400,000)

1 18,000 0.893 16,074

2 159,000 0.797 126,723

3 180,000 0.712 128,160

4 125,000 0.636 79,500

NPV -49,543

The total NPV of project 4 is which is negative so that the project offers areturn of less than 12% per year. So the project 4 should not be undertaken. If a project or an

investment opportunity has a negative NPV then it is said to be earning less than the

required rate of return. A negative NPV decreases the value of the firm and the wealth of the

shareholders.

Conclusions:

In 4 projects 1, 2, 3 and 4, each of them have different levels of NPV for the

organization. But have no projects NPV can be invested by the 4 projects have negative

values.

Recommendations:

Typically, a company will have more investment, any one of which would be accepted,

but because the investments are mutually exclusive, only one or two can be accepted. But

with the CIM cased the company should be adapted for each project to have a positive result.

Because a positive NPV project will increase the company's value and bring more profits for

the company


13/18

2. Internet rate of return (IRR)The formula for IRR is: (

)

[

] Where: a is one interest rate

b is the other interest rate

A is the NPV at rate a

B is the NPV at rate b

a. Project 1

The NPV is negative (54,83) so that the project 1 is fail to earn 7.8% and the IRR must

be less than 7.8%

Try with r = 0.0408r = 4.08%Project 1

Year Cash flows ($) Discount factor at

4.08%

Present value ($)

0 -600,000 1 -600,000

1 10,000 0.9608 9,608

2 200,000 0.9231 184,627

3 400,000 0.887 354,779

4 60,000 0.8521 51,131

NPV 0.145

Because the NPV is positive so the project 1 must earn more than 4.08% and lessthan 7%

Project 1

Year Cash flows

()

Discount factor at 7.8% Present value ()

0 -600,000 1 -600,000

1 10,000 0.927 9,27

2 200,000 0.861 172,2

3 400,000 0.789 319,3

4 60,000 0.74 44,4

NPV -54,83


14/18

IRR= * + = 4.11%The interest rate of return of project 1 is 4.11%

With IRR = 4.11%, the total NPV is

Project 1

Year Cash Flow ($) Discount Factor (4.11%) Present Value

0 -600,000 1 -600,000

1 10,000 0.961 9,610

2 200,000 0.923 184,600

3 400,000 0.887 354,800

4 60,000 0.852 51,116

NPV 0.126

Because the total NPV is positive so IRR = 4.11% is accepted

b. Project 2

Project 2

Year Cash flows () Discount factor at 6.7% Present value ()

0 -500,000 1 -500,000

1 250,000 0.9372 234,302

2 250,000 0.8784 219,600

3 50,000 0.8232 41,160

NPV -4,938

The NPV is negative (4,938) so that the project 2 is fail to earn 6.7% and the IRR must

be less than 6.7%Internet rate of return (IRR)


Year Cash flows ($) Discount factor at 6.03% Present value ($)

0 -500,000 1 -500,000

1 250,000 0.943 235,76

2 250,000 0.889 222,331

3 50,000 0.839 41,9335

NPV 0.025


15/18

Because the NPV is positive so the project 2 must earn more than 6.04% and less than

6.7%



Project 2


0 -500,000 1 -500,000

1 250,000 0,943 235,766

2 250,000 0,889 222,3413 50,000 0,84 41,936

NPV 0.043


c. Project 3

Project 3

Year Cash flows () Discount factor at 13.3% Present value ()

0 -700,000 1 -700,000

1 175,000 0.8826 154,457

2 220,000 0.779 171,381

3 250,000 0.688 171,89

4 100,000 0.6068 60,685

5 95,000 0.5356 50,8832

NPV -90,704

The NPV is negative (90,704) so that the project 3 is fail to earn 13.3% and the IRR

must be less than 13.3%Internet rate of return (IRR)


16/18



0 -700,000 1 -700,0001 175,000 0.933 163,216

2 220,000 0.87 191,369

3 250,000 0.811 202,821

4 100,000 0.756 75,665

5 95,000 0.705 67,041

NPV 0.1123


13.3%



Project 3


0 -700,000 1 -700,0001 175,000 0.933 163,204

2 220,000 0.870 191,342

3 250,000 0.811 202,778

4 100,000 0.756 75,644

5 95,000 0.705 67,018

NPV 0.6



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d. Project 4

Project 4

Year Cash flows () Discount factor at 14% Present value ()

0 -400,000 1 -400,000

1 18,000 0.877 15,7895

2 159,000 0.769 122,345

3 180,000 0.675 121,495

4 125,000 0.592 74,01

NPV -66,36

The NPV is negative (66,36) so that the project 4 is fail to earn 14% and the IRR must

be less than 14%Internet rate of return (IRR)


Year Cash flows ($) Discount factor at 6.805% Present value

($)

0 -400,000 1 -400,000

1 18,000 0.936 16,8532 159,000 0.877 139,384

3 180,000 0.821 147,74

4 125,000 0.768 96,060

NPV 0.0376


14%



Year Cash flows ($) Discount factor at 6.81% Present value

($)

0 -400,000 1 -400,000

1 18 0,9363 16,853

2 159 0,877 139,374

3 180 0.82068385 147,7234 125 0.76836549 96,046


18/18

NPV -0.0049

a2- bdm cheryl

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