Project Planning - Assignment Example

XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXTutor: XXXXXXXXXXXXXXXXXXXXXXX 2015 A, 6 The critical path is 0- 1- 4- 5- 7- 8- 9 In this case, the critical path is also represented as A – B – E – G – J – L A represents - Lay foundations B represents – Build walls E represents – Fit window frames G represents – Fit windows J represents – Lay floor L represents – Install machines The duration of the critical path is 6 + 5 + 3 + 4 + 3 + 4 = 25 weeks PROJECT B The critical paths are: 1) A – C – G 2) B – F- H 3) B – F- I 4) B - E The durations as depicted by the critical paths are: 1) A – C – G 5+ 2 + 4 = 11 weeks 2) B – F- H 4 + 5 + 3 = 12 weeks 3) B – F- I 4 + 5 + 3 = 11 weeks 4) B – E 4 + 5 = 9 weeks PROJECT A YEAR CASH IN DISCOUNT FACTOR PV CASH OUT DISCOUNT FACTOR PV 0 50,000 50000 1 60,000 0.93 55800 30,000 0.93 27900 2 80,000 0.86 68800 40,000 0.86 34400 3 40,000 0.79 31600 24,000 0.79 18960 4 20,000 0.735 14700 20,000 0.735 14700 NPV 24940 PROJECT B YEAR CASH IN DISCOUNT FACTOR PV CASH OUT DISCOUNT FACTOR PV 0 50,000 50000 1 10,000 0.93 9300 10,000 0.93 9300 2 40,000 0.86 34400 20,000 0.86 17200 3 60,000 0.79 47400 30,000 0.79 23700 4 84,000 0.735 61740 40,000 0.735 29400 NPV 23240 PV= Cash Flow * Discount Factor NPV = (Total PV of Cash In) – (Total PV of Cash Out) Using NPV, project A is better than project B because it has a higher NPV. IRR PROJECT A YEAR CASH IN CASH OUT CASH FLOW 0 50,000 1 60,000 30,000 30,000 2 80,000 40,000 40,000 3 40,000 24,000 16,000 4 20,000 20,000 0 Net Cash Flow (FV) 86,000 IRR= [FV/PV] 1/N – 1 FV= 86,000 PV= 50,000 N= 4 IRRA = 0.145 = 14.5% PROJECT B YEAR CASH IN CASH OUT CASH FLOW 0 50,000 1 10,000 10,000 0 2 40,000 20,000 20,000 3 60,000 30,000 30,000 4 84,000 40,000 44,000 Net Cash Flow (FV) 94,000 IRR= [FV/PV] 1/N – 1 FV= 94,000 PV= 50,000 N= 4 IRRB = 0.171 = 17.1% Using IRR, project B should be implemented. Project B has a higher IRR than project A. IRR is the discount rate that equates the Net Present Value (NPV) to zero. Payback Period PROJECT A YEAR CASH IN CASH OUT CASH FLOW CUMMULATIVE CASHFLOW 0 50,000 -50,000 -50,000 1 60,000 30,000 30,000 -20,000 2 80,000 40,000 40,000 20,000 3 40,000 24,000 16,000 36,000 4 20,000 20,000 0 36,000 =1+ (20000/40000) = 1.5 years PROJECT B YEAR CASH IN CASH OUT CASH FLOW CUMMULATIVE CASHFLOW 0 50,000 -50,000 -50,000 1 10,000 10,000 0 -50,000 2 40,000 20,000 20,000 -30,000 3 60,000 30,000 30,000 0 4 84,000 40,000 44,000 44,000 =2+(30000/30000) = 3 years Using the Payback period, Project A is preferred to B. Project A has a fast break even period as compared to project B. The company should therefore implement project A. From the analysis of the Net Present Value, Internal Rate of Return and the Payback Period, I would advice that project A be implemented. Project A will yield better returns than project B at the most convenient time. Read More