3.

Project plans Activity Description Duration (in days) A B Selecting of appropriate showroom design Approval of the propose plan and budget requirements C D E F G H I J K L M N O P Q R S T U V W X Y Z Hiring of construction personnel Clearing the site Setting of the floor lay-out Purchase of materials Prepare the site for construction Construction ceremony Construct the showroom Purchase supplies and fixtures Purchase utility equipments Install utility equipments Install fixtures and decoration Finalizing construction Safety inspection Order the goods to be featured Setting up the goods Conduct test operation Turnover to the manager Training of staff Advertise the opening of showroom Selecting event company Dry-run Initial presentation to company president Grand Opening day Project summary 4 4 5 4 2 4 2 1 15 1 2 3 3 4 1 2 1 2 1 4 7 1 1 1 1 1 Preceding Activities A A B B B E E F G G DC DC JK LM N H O O P IQ RS TUV WX Y Personnel Required 1 1 1 4 2 2 4 2 8 1 1 4 4 4 2 1 3 4 1 2 1 1 3 2 3 1

a. Prepare a project plan for an activity

b. Critical path and duration Path A+C+N+Q+V+X+Y+Z A+C+M+P+U+X+Y+Z A+D+dummy+M+P+U+X+Y+Z A+D+dummy+N+Q+V+X+Y+Z B+G+L+P+U+X+Y+Z B+G+K+O+T+X+Y+Z B+G+K+O+S+W+Y+Z B+F+J+O+T+X+Y+Z B+F+J+O+S+X+Y+Z B+E+H+R+S+W+Y+Z B+E+I+V+X+Y+Z Duration 4+5+4+1+1+1+1+1= 18 4+5+3+2+7+1+1+1 = 24 4+4+0+3+2+7+1+1+1 = 23 4+4+0+4+1+1+1+1+1 = 17 4+2+3+2+7+1+1+1 = 21 4+2+2+1+4+1+1+1 = 16 4+2+2+1+1+1+1+1 = 13 4+4+1+1+4+1+1+1 = 17 4+4+1+1+1+1+1+1 = 14 4+2+1+2+1+1+1 = 12 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 days Event 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

 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 days Event 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 days Event 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 days Event 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 days Event 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 days Event 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 time Event 20: Latest time is 25 Event 19: Latest time at event 19 = Latest time, event 20 duration of Z = 25 1 = 24 Event 18: Latest time at event 18 = Latest time, event 19 duration of Y= 24 1 = 23 Event 17: Latest time at event 17 = Latest time, event 18 duration of X = 23 1 = 22 Event 16: Latest time at event 16 = Latest time, event 17 duration of V = 22 1= 21 Event 15: Latest time at event 15 = Latest time, event 16 duration of U = 22 7 = 15 Event 14: Latest time at event 14 = Latest time, event 16 duration of Q = 21 1 = 20 Event 13: Latest time at event 13 = Latest time, event 18 duration of W = 23 1 = 22 Event 12: Latest even time, event 17 duration of T = 22 4 = 18 Latest even time, event 13 - duration of S = 22 1 = 21

 The latest even time at event 12 is 18 days Event 11: Latest time at event 11 = Latest time, event 15 duration of P = 15 2 = 13 Event 10: Latest even time, event 11 - duration of M = 13 3 = 10 Latest even time, event 14 - duration of N = 20 4 = 16 The latest even time at event 10 is 10 days Event 9: Latest time at event 9 = Latest time, event 13 duration of R = 22 2 = 20 Event 8: Latest time at event 8 = Latest time, event 12 duration of O = 18 1 = 17 Event 7: Latest time at event 7 = Latest time, event 10 dummy = 10 0 = 10 Event 6: Latest time, event 16 duration of I = 21 15 = 6 Latest event time, event 9 duration of H = 20 1 = 19 The latest even time at event 6 is 6 days Event 5: Latest time at event 5 = Latest time, event 8 duration of I = 17 1 = 16 Event 4: Latest even time, event 11 - duration of L = 13 3 = 10 Latest even time, event 8 - duration of K = 17 2 = 15 The latest even time at event 4 is 10 days Event 3 Latest even time, event 10 - duration of C = 10 5 = 5 Latest even time, event 7 - duration of D = 10 4 = 6 The latest even time at event 3 is 5 days Event 2: Latest even time, event 6 - duration of E = 6 2 = 4 Latest even time, event 5 - duration of F = 16 4 = 12 Latest even time, event 4 - duration of G = 10 2 = 8 The latest even time at event 2 is 4 days Event 1: Latest even time, event 2 - duration of B = 4 4 = 0 Latest even time, event 3 - duration of A = 5 4 = 1 The latest even time at event 1 is 0 days Float time

d. Grantt chart

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 Expected life (years) 4 000 Initial cost Expected net cash flows (excluding the initial cost) Year 1 Year 2 Year 3 Year 4 Year 5 Residential value 10 200 400 50 20 10 250 250 50 20 175 220 250 100 80 15 18 159 180 120 12 5 600 Project 2 3 000 500 Project 3 5 000 700 Project 4 4 000 400

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 = = =1

Net present value (NPV0) = (600,000) 1 = (600,000) Year 1: Cash flow = 10,000 Discount factor = = = 0.893

 NPV1 = 10,000 0.893 = 8,930 Year 2: Cash flow = 200,000 Discount factor = = = 0.797

NPV2 = 200,000 0.797 = 159,438 Year 3: Cash flow = 400,000 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 0 1 2 3 4 Cash flow (600,000) 10,000 200,000 400,000 60,000 Discount factor 12% 1 0.893 0.797 0.712 0.636 NPV Present value (600,000) 8,930 159,438 284,712 38,131 -108,789

Based on the NPV result above, NPV of project 1 is

which is negative so

that 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

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 = = = 0.893

NPV1 = 250,000 0.893 = 223,214 Year 2: Cash flow = 250,000 Discount factor = = = 0.797

NPV2 = 250,000 0.797 = 199,298 Year 3: Cash flow = 50,000 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 Project 2 Year 0 1 2 3 Cash flow (500,000) 250,000 250,000 50,000 Discount factor 12% 1 0.893 0.797 0.712 NPV Present value (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.

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

NPV2 = 220,000 0.797 = 175,340 Year 3: Cash flow = 250,000 Discount factor = = = 0.712

NPV3 = 250,000 0.712 = 178,000 Year 4: Cash flow = 100,000 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 Year 0 1 2 Cash flow (700,000) 175,000 220,000 Discount factor 12% 1 0.893 0.797 Present value (700,000) 156,250 175,340

3 4 5

250,000 100,000 95,000

0.712 0.636 0.567 NPV

178,000 63,551 53,906 -72,953

The total NPV of project 3 is

which is negative so that the project offers a

return 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 = = =1

Net present value (NPV0) = (400,000) 1 = (400,000) Year 1: Cash flow = 18,000 Discount factor = = = 0.893

NPV1 = 18,000 0.893 = 16,074 Year 2: Cash flow = 159,000 Discount factor = = = 0.797

NPV2 = 159,000 0.797 = 126,723 Year 3: Cash flow = 180,000 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

= 400,000 + 16,074 + 126,723 + 128,160 + 79,500 = - 49,543 Project 4 Year 0 1 2 3 4 Cash flow (400,000) 18,000 159,000 180,000 125,000 Discount factor 12% 1 0.893 0.797 0.712 0.636 NPV The total NPV of project 4 is Present value (400,000) 16,074 126,723 128,160 79,500 -49,543

which is negative so that the project offers a

return 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

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

Project 1 Year 0 1 2 3 4 Cash flows () -600,000 10,000 200,000 400,000 60,000 Discount factor at 7.8% 1 0.927 0.861 0.789 0.74 NPV Present value () -600,000 9,27 172,2 319,3 44,4 -54,83

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 = 0.0408 r = 4.08% Project 1 Year 0 1 2 3 4 Cash flows ($) -600,000 10,000 200,000 400,000 60,000 Discount factor at 4.08% 1 0.9608 0.9231 0.887 0.8521 NPV Present value ($) -600,000 9,608 184,627 354,779 51,131 0.145

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

IRR =

= 4.11%

The interest rate of return of project 1 is 4.11% With IRR = 4.11%, the total NPV is Project 1 Discount Factor (4.11%) Present Value 1 -600,000 0.961 9,610 0.923 184,600 0.887 354,800 0.852 51,116 NPV 0.126

Year 0 1 2 3 4

Cash Flow ($) -600,000 10,000 200,000 400,000 60,000

Because the total NPV is positive so IRR = 4.11% is accepted b. Project 2

Project 2 Year 0 1 2 3 Cash flows () -500,000 250,000 250,000 50,000 Discount factor at 6.7% 1 Present value () -500,000

0.9372 234,302 0.8784 219,600 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) Try with r = 0.0604 r = 6.04% Project 2 Year 0 1 2 3 Cash flows ($) -500,000 250,000 250,000 50,000 Discount factor at 6.03% 1 0.943 0.889 0.839 NPV Present value ($) -500,000 235,76 222,331 41,9335 0.025

Because the NPV is positive so the project 2 must earn more than 6.04% and less than 6.7% IRR = * + = 6.03%

The interest rate of return of project 1 is 6.03% With IRR = 6.03%, the total NPV is Project 2 Year 0 1 2 3 Cash flows ($) -500,000 250,000 250,000 50,000 Discount factor at 6.02% 1 0,943 0,889 0,84 NPV Present value ($) -500,000 235,766 222,341 41,936 0.043

Because the total NPV is positive so IRR = 6.03% is accepted c. Project 3

Project 3 Year 0 1 2 3 4 5 Cash flows () -700,000 175,000 220,000 250,000 100,000 95,000 Discount factor at 13.3% Present value ()

1 -700,000 0.8826 154,457 0.779 171,381 0.688 171,89 0.6068 60,685 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)

Try with r = 0.0721 r = 7.21% Project 3 Year 0 1 2 3 4 5 Cash flows ($) -700,000 175,000 220,000 250,000 100,000 95,000 Discount factor at 7.21% 1 0.933 0.87 0.811 0.756 0.705
NPV

Present value ($) -700,000 163,216 191,369 202,821 75,665 67,041 0.1123

Because the NPV is positive so the project 3 must earn more than 7.21% and less than 13.3% IRR = * + = 7.23%

The interest rate of return of project 1 is 7.23% With IRR = 7.23%, the total NPV is Project 3 Discount factor at 7.23% 1 0.933 0.870 0.811 0.756 0.705
NPV

Year 0 1 2 3 4 5

Cash flows ($) -700,000 175,000 220,000 250,000 100,000 95,000

Present value ($) -700,000 163,204 191,342 202,778 75,644 67,018 0.6

Because the total NPV is positive so IRR = 7.23% is accepted

d. Project 4

Project 4 Year 0 1 2 3 4 Cash flows () -400,000 18,000 159,000 180,000 125,000 Discount factor at 14% Present value ()

1 -400,000 0.877 15,7895 0.769 122,345 0.675 121,495 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) Try with r = 0.0685 r = 6.805% Project 4 Present value ($) 0 -400,000 1 -400,000 1 18,000 0.936 16,853 2 159,000 0.877 139,384 3 180,000 0.821 147,74 4 125,000 0.768 96,060 NPV 0.0376 Because the NPV is positive so the project 4 must earn more than 6.805% and less than 14% IRR = * + = 6.81% Year Cash flows ($) Discount factor at 6.805%

The interest rate of return of project 1 is 6.81% With IRR = 6.81%, the total NPV is Year 0 1 2 3 4 Cash flows ($) -400,000 18 159 180 125 Discount factor at 6.81% 1 0,9363 0,877 0.82068385 0.76836549 Present value ($) -400,000 16,853 139,374 147,723 96,046

NPV

-0.0049