PMGT 510 – Principles of Project Management

Shaoxiong Song

Individual assignment Unit 2

1. Payback Analysis

Payback Period = Investment cost / Annual Net Cash Flows

PP of Project A = $ 250,000 / $ 75,000 = 3.3333 Years

PP of Project B = $ 150,000 / $ 52,000 = 2.8846 Years

According to the calculation for PP of Project A and Project B, the Project B is the
better option since it has a short Project Period.

2. Net Present Value

A.
NPV= PV revenue - PV cost
PV Revenue of 1 years = $20,000 / (1+0.2)^1 = $16,666.67
PV Revenue of 2 years = $25,000 / (1+0.2)^2 = $17,361.11
PV Revenue of 3 years = $30,000 / (1+0.2)^3 = $17,361.11
PV Revenue of 4 years = $50,000 / (1+0.2)^4 = $24,112.65
PV Revenue = $16,666.67 + $17,361.11 + $17361.11 + $24112.65 = $75,501.54
NPV = $75,501.54 - $75,000 = $501.54

B.
Benefit-Cost Ratio = Cash flow / Project investment
Cash flow = $20,000 + $25,000 + $30,000 + $50,000 =$125,000
Benefit-cost Ratio = $125,000 / $75,000 = 1.6667

C.
Year 1 = $20,000 / (1+0.24)^1 = $ 16,129.03
Year 2 = $25,000 / (1+0.24)^2 = $ 16,259.10
Year 3 = $30,000 / (1+0.24)^3 = $ 15,734.62
Year 4 = $50,000 / (1+0.24)^4 = $ 21,148.69
NPV = ($16,129.03 + $ 16,259.10 + $ 15,734.62 + $ 21,148.69) - $ 75,000
= - $ 5,728.56