Project Management: The Managerial Process (Mcgraw-hill Series Operations and Decision Sciences)
7th Edition
ISBN: 9781259666094
Author: Erik W. Larson, Clifford F. Gray
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 2, Problem 4E
You work for the 3T company, which expects to earn at least i8 percent on its investments. You have to choose between two similar projects. The following chart shows the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information? Why?
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The chart below shows the initial investment and expected yearly payback for Project A and Project B
Project A
Project B
Initial Investment
$ 300,000
$ 450,000
Expected Yearly PayBack
$ 45,000
$ 90,000
For Project A, There has been a change in the expected yearly payback.
Years 1 and 2 – you are expecting $45,000 each year.
For the next three years, you are expecting $70,000 each year.
What would be the average ROI for this alternative?
Suppose you're a financial analyst at a company, and you are recommending whether the company
should invest in Project A or Project B.
Each of the two projects has been proposed by a lead engineer, but the company can only invest in
creating one of them this year, and so your manager wants you to give her advice on which one to
invest in. Your company's WACC is 9%.
Project A
Project 8
Year
Cash Flow
Year
Cash Flow
$3 ilio, ntialinvestment
$2 milion proft
$4 ilion pofit
$A milion proft
$2 milion proft
$0, projet loseout
$3 ilion, ntia ivestment
$0
$0
$0
$0
$14 milion poit
1
1
2
2
3
3
4
4
5
5
Calculate the net present value (NPV) of and decide which one is better.
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Chapter 2 Solutions
Project Management: The Managerial Process (Mcgraw-hill Series Operations and Decision Sciences)
Ch. 2 - Describe the major components of the strategic...Ch. 2 - Explain the role projects play in the strategic...Ch. 2 - How are projects linked to the strategic plan?Ch. 2 - The portfolio of projects is typically represented...Ch. 2 - Why does the priority system described in this...Ch. 2 - Why should an organization not rely only on ROI to...Ch. 2 - Discuss the pros and cons of the checklist versus...Ch. 2 - You manage a hotel resort located on the South...Ch. 2 - Two new software projects are proposed to a young,...Ch. 2 - A five-year project has a projected net cash flow...
Ch. 2 - You work for the 3T company, which expects to earn...Ch. 2 - You are the head of the project selection team at...Ch. 2 - You are the head of the project selection team at...Ch. 2 - The Custom Bike Company has set up a weighted...Ch. 2 - What is our major problem?Ch. 2 - Identify some symptoms of the problem.Ch. 2 - What is the major cause of the problem?
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- 5. Describe one issue that potentially limits the effectiveness of project management software in businesses. How can this issue be overcome? 6. You have been assigned as the project manager for the SuperMegaExtraBig Systems Upgrade project. As part of your project risk analysis, you determined the top 10 risks in this project based on their expected monetary value (EMV). The data is below: Risk EMV $45,000 $38,000 $32,000 $21,500 $14,500 $12,200 $8,000 $6,500 $4,000 $4,000 A C F How much risk reserve (risk contingency) should you budget for this project? Justify your response. DEEGHI -→arrow_forwardEstimating project costs seems to be the main problem for Project 14321. You are to advise a reward mechanism for TSC management that will help with improving project cost estimationarrow_forwardInvestment timing option: left Table shows the investment made now (year 0); right Table shows the investment made 1 year later. Discount rate is r = 10%. Probability Year 0 0.50 -$28 0.50 -$10 $11 None of the others is correct $10 Year 1 $55 $22 If this project's uncertainty in Year 0 (two scenarios with 50% chance each) is completely gone right after the end of year 0, i.e., you will know which scenario turns out to be true right after Year 0, then what is the value of this investment timing option today? [Hint: value of the option = E[NPV with option] - E[NPV] =?] 3 Year 2 $0 Probability Year 0 0.50 $0 0.50 Year 1 -$28 -$28 Year 2 $55 $22arrow_forward
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