Budget Baseline

Develop a baseline budget assuming tasks are planned to start at their earliest possible
starting times.
1
2
3
4
A
30
30
30
30
B
40
40
40
40
C
D
E
Total
70
70
70
70
Cumulative
70
140
210
280

70
140
210
280
430
540
650
710
770

Latest Sch. Budget

70
140
210
280
380
440
550
660
770

150
430

50
60
110
540

50
60
110
650

60
60
710

60
60
770

60
60
440

50
60
110
550

50
60
110
660

50
60
110
770

100

100
380

Budget Baseline

900
Cost ($)

Ealiest Sch. Budget

1
2
3
4
5
6
7
8
9

100
50

Develop a baseline budget assuming tasks are planned to start at their latest possible
starting times.
1
2
3
4
A
30
30
30
30
B
40
40
40
40
C
D
E
Total
70
70
70
70
Cumulative
70
140
210
280

Week

800
700
600
500

Ealiest Sch.
Budget

400
300
200
100
0
1

Activity
A
B
C
D
E

Normal Time
6
8
4
5
8

Original
A-D
B-D
C-E

11
13
12

Normal Cost
$900.00
$300.00
$500.00
$900.00
$1,000.00
$3,600.00

Total allowable
Crash time
1
2
1
2
3

Crash Cost
$1,000.00
$400.00
$600.00
$1,200.00
$1,600.00

Crash cost/day
$100.00
$50.00
$100.00
$150.00
$200.00

Crash By

Crashing Cost
0
2
1
1
1

0
100
100
150
200
550

Total

CRASHING
Step 1: Crash B once (cost $50)
Paths
A-D
B-D
C-E

Crash Time
5
6
3
3
5

Expected Duration
11
12
12

2 critical paths

Step 2: Crash B(cost $50) &C(cost $100) once

Paths
Expected Duration
A-D
11
B-D
11
C-E
11
Step 2: Crash D(cost $150) &E(cost $200) once
Paths
Expected Duration
A-D
10
B-D
10
C-E
10
Normal Project Cost
Total Cashing cost=
Total Cost

$3,600.00
$550.00
$4,150.00

Path
A-D
B-D
C-E

Length
11
13
12

Crash B
11
12
12

Action
Crash B
Crash B & C
Crash D& E

Marginal cost
50
150
350

Total Crash Cost

50
200
550

Crash B & C
11
11
11

Crash D & E
10
10
10

Activity
A
B
C
D
E
F

Immediate
Predecessor.
__

A
B
A
D
C, E

Normal
Time(weeks)
10
8
10
7
10
3

Normal
Cost
30
120
100
40
50
60

Total cost

Normal Cost Total indirect Cost

400
3100

Crash B

Crash
Time(weeks)
8
6
7
6
8
1

Path
A-B-C-F
A-D-E-F

Length

Action
Crash B
Crash F
Crash F

Marginal Cost
Total Crash Cost
15
15
17.5
32.5
17.5
50

Total cost

Normal Cost
Total indirect Cost
Total Crash
Total Penalty
400
2800
50

31
30

Crash F
30
30

Crash
Cost
70
150
160
50
75
95

28
28

2
2
3
1
2
2
Total penalty
600

Crash F
29
29

Allowable
Crash time

3250

Crash Cost
/week
$
$
$
$
$
$

20.00
15.00
20.00
10.00
12.50
17.50

4100

C
F

A
D

B(3)

F(4)

G(5)

D(5)

A(7)

C(4)

E(2)

Activity

Normal Time

Crash
Time

A
B
C
D
E
F
G

7
3
4
5
2
4
5

6
2
3
4
1
2
4
$35,000

Action
Crash A
Crash C
Crash F
Crash F

Marginal
Cost
$1,000
$1,200
$1,500
$1,500

Total Crash
Cost
$1,000
$2,200
$3,700
$5,200

Total Project Cost = Total Normal cost + Total Crash cost

$40,200

Normal
Cost
$7,000
5,000
9,000
3,000
2,000
4,000
5,000

Crash Cost
$8,000
7,000
10,200
4,500
3,000
7,000
8,000

Cost/Day
$1,000
2,000
1,200
1,500
1,000
1,500
3,000

Year
Benefits
Less Costs
Cash Flow
x Discount Factor (=13%)
Present Value
NPV

1
9250.0
23570.0
-14320.0
0.9
-12672.6
650.5

2
21000.0
15320.0
5680.0
0.8
4448.3

0.1

Project A

Factor
0
1
2
3
4

NPV
IRR
Payback Period

-1000
500
400
300
100

$1.00
$0.91
$0.83
$0.75
$0.68

PV
($1,000.00)
$454.55
$330.58
$225.39
$68.30
$78.82

14%
3.0769230769

0.1

Project A

Factor
0
1
2
3
4

NPV
IRR
Payback Period

3
21000.0
15320.0
5680.0
0.7
3936.5

-1000
100
300
400
600
12%
2.8571428571

$1.00
$0.91
$0.83
$0.75
$0.68

PV
($1,000.00)
$90.91
$247.93
$300.53
$409.81
$49.18

4
5
21000.0
21000.0
15320.0
18320.0
5680.0
2680.0
0.6
0.5
3483.7
1454.6

Rate without inflation

Initial investment
Revenue
Depreciation Cost
Salvage
Earning before tax
Tax Payment (34%)
Profit After Tax
Add Back Depreciation
Current
Factor discount rate (0.08)
PV
NPV

0.08
0
-55000

-55000
-55000
-55000
1
($55,000.00)
$348.97

15000
-10000

15000
-10000

15000
-10000

15000
-10000

15000
-10000
5000
10000
3400
6600
16600
16600
0.680583197
$11,297.68

5000
1700
3300
13300
13300
0.925925926
$12,314.81

5000
5000
5000
1700
1700
1700
3300
3300
3300
13300
13300
13300
13300
13300
13300
0.85733882 0.793832241 0.735029853
$11,402.61
$10,557.97
$9,775.90

Rate with Inflation

0.134
Initial investment
Revenue
Depreciation Cost
Salvage
Earning before tax
Tax Payment (34%)
Profit After Tax
Add Back Depreciation
Current
Factor discount rate (0.08)
PV
NPV

0
-55000

-55000
-55000
-55000
1
($55,000.00)
($6,914.05)

15000
-10000

15000
-10000

5000
5000
1700
1700
3300
3300
13300
13300
13300
13300
0.881834215 0.777631583
$11,728.40
$10,342.50

15000
-10000

15000
-10000

15000
-10000
5000
10000
3400
6600
16600
16600
0.533254743
$8,852.03

5000
5000
1700
1700
3300
3300
13300
13300
13300
13300
0.685742137 0.604710879
$9,120.37
$8,042.65

Valuation with Inflatio

Consider the cash flow below. Compute the following:
1. Inflation Adjusted Cash Flow
2. Discounted Cash Flow After Inflation Adjustment
3. Inflation Adjusted Net Present Value
4. Market Rate
5. Inflation Adjusted Net Present Value using the Market Rate
6. Should this Project be pursued after adjustment for inflation?
7. Should this Project be pursued if inflation is disregarded?
Inflation Rate:
Discount Rate:
Year
Cash Flow

4.00% Annual
10.00% Annual
0
($50,000)

1
($60,000)

Inflation Adjusted Ca
Year
Cash Flow
1. Inflation Adjusted Cash Flow

0
($50,000)
($50,000)

1
($60,000)
($57,692)

Inflation Adjusted Dis

Inflation Adjusted Cash Flow
2. Inflation Adjusted Discounted Cash Flow

($50,000)
($50,000)

3. Inflation Adjusted Present Value

($6,361)

4. Market Rate:

($57,692)
($52,448)

14.40% m = i + f + i * f

Cash Flow

($50,000)

5. Inflation Adjusted Present Value

($6,361)

($60,000)

6. This project has a negative Present Value after inflation, so do not pursue.

7. Net Present value without inflation

$23,545 The Project should be pu

uation with Inflation

f
i
2
($100,000)

3
$30,000

4
$40,000

5
$100,000

6
$175,000

3
$30,000
$26,670

4
$40,000
$34,192

5
$100,000
$82,193

6
$175,000
$138,305

ation Adjusted Cash Flow

2
($100,000)
($92,456)

ation Adjusted Discounted Cash Flow

($92,456)
($76,410)

$26,670
$20,037

$34,192
$23,354

$82,193
$51,035

$138,305
$78,070

($100,000)

$30,000

$40,000

$100,000

$175,000

= i+f+i*f

Project should be pursued if inflation is not considered.