One of the most important functions or duties of a finance manager is to evaluate the project for the organization which ultimately increases the shareholder’s equity for the company. Project management sometimes referred as the project evaluation has been the major of concern for almost every organization. Inevitably, project evaluation is a tough job and due to its complexity a large number of people hire exceptional professionals to calculate and evaluate the best possible project for them.
In this short report, we will seek the answer of different project management questions. Before go in the details, one must have a very good idea regarding the terminology we will use throughout this paper, when we calculate the projects.
NPV = Net Present Value, In finance, the net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows
MARR: In business and engineering, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects. A synonym seen in many contexts is minimum attractiverate of return.
Now let’s start the analysis
Question-1
Ans-1)
The analytical sheet are mentioned below of all the projects,
Project 1 |
||
Life = 10 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
1 |
-870,000 |
|
2 |
700,000 |
636363.64 |
3 |
700,000 |
578512.40 |
4 |
700,000 |
525920.36 |
5 |
700,000 |
478109.42 |
6 |
700,000 |
434644.93 |
7 |
700,000 |
395131.75 |
8 |
700,000 |
359210.68 |
9 |
700,000 |
326555.17 |
10 |
700,000 |
296868.33 |
|
|
4031316.67 |
|
|
|
Project Feasibility Positive NPV |
|
3161316.7 |
IRR |
|
80% |
Project 2 |
||
Life = 50 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
1 |
-830,000 |
|
2 |
700,000 |
636363.64 |
3 |
700,000 |
578512.40 |
4 |
700,000 |
525920.36 |
5 |
700,000 |
478109.42 |
6 |
700,000 |
434644.93 |
7 |
700,000 |
395131.75 |
8 |
700,000 |
359210.68 |
9 |
700,000 |
326555.17 |
10 |
700,000 |
296868.33 |
11 |
500000 |
192771.64 |
12 |
500000 |
175246.95 |
13 |
500000 |
159315.41 |
14 |
500000 |
144832.19 |
15 |
500000 |
131665.63 |
16 |
500000 |
119696.02 |
17 |
500000 |
108814.57 |
18 |
500000 |
98922.33 |
19 |
500000 |
89929.39 |
20 |
500000 |
81754.00 |
21 |
500000 |
74321.81 |
22 |
500000 |
67565.29 |
23 |
500000 |
61422.99 |
24 |
500000 |
55839.08 |
25 |
500000 |
50762.80 |
26 |
500000 |
46148.00 |
27 |
500000 |
41952.73 |
28 |
500000 |
38138.84 |
29 |
500000 |
34671.67 |
30 |
500000 |
31519.70 |
31 |
500000 |
28654.28 |
32 |
500000 |
26049.34 |
33 |
500000 |
23681.22 |
34 |
500000 |
21528.38 |
35 |
500000 |
19571.26 |
36 |
500000 |
17792.05 |
37 |
500000 |
16174.59 |
38 |
500000 |
14704.17 |
39 |
500000 |
13367.43 |
40 |
500000 |
12152.21 |
41 |
500000 |
11047.46 |
42 |
500000 |
10043.15 |
43 |
500000 |
9130.14 |
44 |
500000 |
8300.12 |
45 |
500000 |
7545.57 |
46 |
500000 |
6859.61 |
47 |
500000 |
6236.01 |
48 |
500000 |
5669.10 |
49 |
500000 |
5153.72 |
50 |
500000 |
4685.20 |
|
|
6104952.73 |
|
|
|
Project Feasibility Positive NPV |
|
5274952.7 |
IRR |
|
84% |
Project 3 |
||
Life = 50 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
1 |
-760,000 |
|
2 |
700,000 |
636363.64 |
3 |
700,000 |
578512.40 |
4 |
700,000 |
525920.36 |
5 |
700,000 |
478109.42 |
6 |
700,000 |
434644.93 |
7 |
700,000 |
395131.75 |
8 |
700,000 |
359210.68 |
9 |
700,000 |
326555.17 |
10 |
700,000 |
296868.33 |
11 |
1400000 |
539760.61 |
12 |
1400000 |
490691.46 |
13 |
1400000 |
446083.14 |
14 |
1400000 |
405530.13 |
15 |
1400000 |
368663.76 |
16 |
1400000 |
335148.87 |
17 |
1400000 |
304680.79 |
18 |
1400000 |
276982.54 |
19 |
1400000 |
251802.31 |
20 |
1400000 |
228911.19 |
21 |
1400000 |
208101.08 |
22 |
1400000 |
189182.80 |
23 |
1400000 |
171984.36 |
24 |
1400000 |
156349.42 |
25 |
1400000 |
142135.84 |
26 |
1400000 |
129214.40 |
27 |
1400000 |
117467.63 |
28 |
1400000 |
106788.76 |
29 |
1400000 |
97080.69 |
30 |
1400000 |
88255.17 |
31 |
1400000 |
80231.97 |
32 |
1400000 |
72938.16 |
33 |
1400000 |
66307.42 |
34 |
1400000 |
60279.47 |
35 |
1400000 |
54799.52 |
36 |
1400000 |
49817.74 |
37 |
1400000 |
45288.86 |
38 |
1400000 |
41171.69 |
39 |
1400000 |
37428.81 |
40 |
1400000 |
34026.19 |
41 |
1400000 |
30932.90 |
42 |
1400000 |
28120.82 |
43 |
1400000 |
25564.38 |
44 |
1400000 |
23240.35 |
45 |
1400000 |
21127.59 |
46 |
1400000 |
19206.90 |
47 |
1400000 |
17460.82 |
48 |
1400000 |
15873.47 |
49 |
1400000 |
14430.43 |
50 |
1400000 |
13118.57 |
|
|
9837497.64 |
|
|
|
Project Feasibility Positive NPV |
|
9007497.6 |
IRR |
|
92% |
Project 4 |
||
Life = 50 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
1 |
-685,000 |
|
2 |
700,000 |
636363.64 |
3 |
700,000 |
578512.40 |
4 |
700,000 |
525920.36 |
5 |
700,000 |
478109.42 |
6 |
700,000 |
434644.93 |
7 |
700,000 |
395131.75 |
8 |
700,000 |
359210.68 |
9 |
700,000 |
326555.17 |
10 |
700,000 |
296868.33 |
11 |
3000000 |
1156629.87 |
12 |
3000000 |
1051481.70 |
13 |
3000000 |
955892.45 |
14 |
3000000 |
868993.14 |
15 |
3000000 |
789993.76 |
16 |
3000000 |
718176.15 |
17 |
3000000 |
652887.41 |
18 |
3000000 |
593534.01 |
19 |
3000000 |
539576.37 |
20 |
3000000 |
490523.97 |
21 |
3000000 |
445930.88 |
22 |
3000000 |
405391.71 |
23 |
3000000 |
368537.92 |
24 |
3000000 |
335034.47 |
25 |
3000000 |
304576.79 |
26 |
3000000 |
276887.99 |
27 |
3000000 |
251716.36 |
28 |
3000000 |
228833.05 |
29 |
3000000 |
208030.05 |
30 |
3000000 |
189118.23 |
31 |
3000000 |
171925.66 |
32 |
3000000 |
156296.05 |
33 |
3000000 |
142087.32 |
34 |
3000000 |
129170.29 |
35 |
3000000 |
117427.54 |
36 |
3000000 |
106752.31 |
37 |
3000000 |
97047.55 |
38 |
3000000 |
88225.05 |
39 |
3000000 |
80204.59 |
40 |
3000000 |
72913.26 |
41 |
3000000 |
66284.78 |
42 |
3000000 |
60258.89 |
43 |
3000000 |
54780.81 |
44 |
3000000 |
49800.74 |
45 |
3000000 |
45273.40 |
46 |
3000000 |
41157.64 |
47 |
3000000 |
37416.03 |
48 |
3000000 |
34014.58 |
49 |
3000000 |
30922.34 |
50 |
3000000 |
28111.22 |
|
|
16473133.03 |
|
|
|
Project Feasibility Positive NPV |
|
15643133.0 |
IRR |
|
103% |
Project 4 |
||
Life = 50 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
1 |
-630,000 |
|
2 |
700,000 |
636363.64 |
3 |
700,000 |
578512.40 |
4 |
700,000 |
525920.36 |
5 |
700,000 |
478109.42 |
6 |
700,000 |
434644.93 |
7 |
700,000 |
395131.75 |
8 |
700,000 |
359210.68 |
9 |
700,000 |
326555.17 |
10 |
700,000 |
296868.33 |
11 |
4000000 |
1542173.16 |
12 |
4000000 |
1401975.60 |
13 |
4000000 |
1274523.27 |
14 |
4000000 |
1158657.52 |
15 |
4000000 |
1053325.02 |
16 |
4000000 |
957568.20 |
17 |
4000000 |
870516.54 |
18 |
4000000 |
791378.68 |
19 |
4000000 |
719435.16 |
20 |
4000000 |
654031.96 |
21 |
4000000 |
594574.51 |
22 |
4000000 |
540522.28 |
23 |
4000000 |
491383.89 |
24 |
4000000 |
446712.63 |
25 |
4000000 |
406102.39 |
26 |
4000000 |
369183.99 |
27 |
4000000 |
335621.81 |
28 |
4000000 |
305110.74 |
29 |
4000000 |
277373.40 |
30 |
4000000 |
252157.63 |
31 |
4000000 |
229234.21 |
32 |
4000000 |
208394.74 |
33 |
4000000 |
189449.76 |
34 |
4000000 |
172227.06 |
35 |
4000000 |
156570.05 |
36 |
4000000 |
142336.41 |
37 |
4000000 |
129396.74 |
38 |
4000000 |
117633.40 |
39 |
4000000 |
106939.45 |
40 |
4000000 |
97217.68 |
41 |
4000000 |
88379.71 |
42 |
4000000 |
80345.19 |
43 |
4000000 |
73041.08 |
44 |
4000000 |
66400.99 |
45 |
4000000 |
60364.53 |
46 |
4000000 |
54876.85 |
47 |
4000000 |
49888.04 |
48 |
4000000 |
45352.77 |
49 |
4000000 |