1. Explain feasibility analysis. 2. What is the NPV? . . . the B/C? . . . the IRR? 3. What is the criterion for project acceptability for the NPV? . . . for the B/C? . . . for the IRR? 4. How is the I
Arbaminch Univesity
School of graduate studies
Department of Management
Project Management
Explain feasibility analysis.
What is the NPV? . . . the B/C? . . . the IRR?
What is the criterion for project acceptability for the NPV? . . . for the B/C? . . . for the IRR?
How is the IRR of a project generally calculated?
Why is the IRR generally not a good way to evaluate investment alternatives?
Consider the following investment. You invest $500 per acre to establish a stand of trees. At the end of each year for 30 years, you incur an annual management expense of $10. At the end of 30 years, you receive $5,000 per acre in stumpage fees.
Calculate the NPV and B/C ratio for this investment.
Calculate the internal rate of return on this investment to the nearest tenth of a percent.
Given below are the after-tax incremental cash flows for Projects A and B. Note the similarity between the two projects.
End of Year | ||||||
Projects | ||||||
Project A | -10,000 | -50000 | 60,000 | 20,000 | 30,000 | 15,000 |
Project B | -10,000 | 50,000 | -60,000 | 40,000 | 30,000 | 20,000 |
Calculate the NPV at 20% for each project.
Calculate the IRR(s) for the two projects.
If you had to invest in one of the projects, which project would you prefer and why?
The Rover 6 is a new custom-designed sports car. An analysis of the task of building the Rover 6 reveals the following list of relevant activities, their immediate predecessors, and their duration.
Letter Normal | Description | Immediate Predecessor(S) | Time (Days) |
B | Design | ||
Order special accessories | B | ||
D | Build frame | ||
Build doors | |||
Attach axles, wheels, gas tank | |||
Build body shell | |||
Build transmission & drivetrain | |||
Fit doors to bodyshell | G, E | ||
Build engine | |||
Bench-test engine | |||
Assemble chassis | L | ||
Paint body | I | ||
Install wiring | N | ||
Install interior | |||
Accept delivery of special accessories | |||
Mount body and accessories on the chassis | M, O, N, Q | ||
Road test | |||
Attach exterior trim |