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TRINE UNIVERSITY
BY:-
PRAMUKH SHEKAR
CHINTHAN
SANDEEP
SIDDARTHA
WASI
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CONTENTS
Scenario 1.3-5
Scenario 2..5-7
Scenario 3..7-10
Scenario 410-11
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Net Present Value (NPV) is defined as the difference between the present value of cash inflows
and the present values of cash outflows; it is used to analyze the profit of presented project or
investment.
Strengths of NPV:
NPV takes into account the future dollar value is less worth than todays dollar, the cash
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Weaknesses of NPV:
The firms cost of capital requires guesswork and analyzation based on which high or
low assumptions of cost of capital will result in suboptimal or too good investments
respectively.
It cannot be implemented for comparison of two projects of different size.
In scenario 1, based on the data provided we use the formula of NPV as the difference of
Present value, Development cost and Commercialization cost to calculate NPV of the 9 projects
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given with their present value and costs which vary accordingly. We thus calculate NPV of each
Ranking is done based on starting from highest NPV and follows accordingly, hence in our case
Limas project got highest NPV as 54, so we rank her 1 and we decide to Go. The values with
negative NPV are decided as Kill and the rest are ranked and decided to Go descending from
the highest NPV. In our case we rejected Echos and Alphas and decided to Kill as their NPV
NPV PI is defined as the analyzation of the profitability of the project based on NPVand
development cost.
NPV PI is useful for analyzing the project based on its financial performance.
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years later.
Two projects that are mutually exclusive would not be considered as the PI process.
Works on the estimate of cash flows.
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The process of adding development cost of projects based on their ranking is done until the
capacity of $25million is reached. the limit of $25million in scenario 2 reaches at project Beta.
Hence, the decision to go is made for every project accordingly. Alpha and echo are decided to
kill since their developmental costs exceeds $25m and they have negative NPV PI value.
Scenario 3
The above scenario is about the calculations generated to analyze the estimated commercial
value profitability index. Taking into account the factors such as NPV, financial planning at the
development stage.
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From the above given figure we can calculate the factors such as launch cost,
STRENTGHS OF ECV
value.
Weakness of ECV
The commercial value of the project is calculated in this scenario and the Calculation of the
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According to the tabulation, Tango is ranked 1and Sierra is ranked 2 and the rest follow
accordingly. The limit of the project at $25million of development cost is reached are
go and the rest are decided as kill. Alpha, Oscar and Lima are decided to kill as
explained earlier.
Scenario 4
The limit of $17.5 million is given in this scenario 4. The remaining procedure follows as
scenario 3.
Sierra:ECV PI=0.45,GO
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REFERENCES:
http://www.businessdictionary.com/definition/net-present-value-NPV.html
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