Handstar Inc.

Executive Summary
Handstar Inc. is a company that has developed a smartphone application that allows users to track their personal spending. Currently, the firm
expects to spend 360,000 dollars and 1250 hours of software development work to integrate its messaging app with the current calendar app.
Handstar Inc.'s founders are concerned about the company's competitiveness because they have not been able to upgrade since its inception. The
founders seek to strengthen the company's competitive position and are market leaders in attracting and retaining new clients.
Handstar Inc.'s founders are concerned about the company's competitiveness because they have not been able to upgrade since its inception. The
founders seek to strengthen the company's competitive position and are market leaders in attracting and retaining new clients.In the process of
growing the company’s target and revenue, 6 projects have been identified. Among the six projects 3 are updation of the already ongoing
project and other 3 are new product development project.

Questions
1. Which projects would you recommend Handstar pursue based on the NPV approach?
Answer:
Given:
Discount Rate 12%
Each Software Developer Working
2500
Hours Per Year
Number of Software Developers 4
Total Available Hours 10000
Hourly Rate $53
Life of a Project (In Years) 3
Total Hours Required 13025
Project wise growth rate and cost:

Calendar & Expense Portfolio Spreadshee Trip

Cost ($) Browser
Email Report Tracker t Planner
Growth
-10% 5% 5% 10% 15% 5%
Rate
Require
1250 400 750 2500 1875 6250
d Time
Cost ($) 66250 21200 39750 132500 99375 331250
Calculation has been used by using the mentioned parameter given in Table 1, then using the cash flow we calculated the NPV:

Cash Flow Calendar & Expense Portfolio

Spreadsheet Browser Trip Planner
for 3 years Email Report Tracker
Year 0 -66250 -21200 -39750 -132500 -99375 -331250
Year 1 735000 246000 514000 1130000 2400000 1600000
Year 2 661500 258300 539700 1243000 2760000 1680000
Year 3 595350 271215 566685 1367300 3174000 1764000
$5,97,403.5 $65,02,927.7
NPV ($) $15,41,102.12 $12,52,779.30 $28,40,557.69 $36,92,187.50
2 5
IRR 10.99 11.65 12.98 8.62 24.30 4.85

Based on the NPV calculations, Handstar Inc should go ahead with Brower project followed by Trip Planner project and then followed by
spreadsheet project project.

2. Assume the founders weigh a project’s NPV twice as much as both obtaining/retaining a leadership position and making use of the
Internet. Use the weighted factor scoring method to rank these projects. Which projects would you recommend Handstar pursue?
Answer:
Assumptions
 Each characteristics is marked on scale of 1-3, 1 being low and 3 being high
 Each characteristics has a scale of 1-10
 NPV has been scaled such that highest is 10 and the lowest is 0
 Chance of Leadership [ very low-0, low -1, moderate-4, high-7, almost certain-10]
 Internet Usage [No usage-0, little use-3, moderate usage-7, extensive usage-10]
As per the case, below is the breakout of strategic alignment for the respective projects:

Project No Project Type Project Name Strategic alignment

1 Update Integration of calendar and Moderate possibility

email of Leadership
Position.
 Moderate internet
use
Almost certainly of
Leadership Position
2 Update Expense report
Low internet use
High possibility of
Leadership Position
3 Update Portfolio tracking system
Moderate internet
use
Moderate possibility
of Leadership
4 New Product Spreadsheet Program Position

No internet use
Very Low
possibility of
5 New Product Web Browser Leadership Position

High internet use

6 New Product
Low possibility of
Leadership Position
Trip Planner
.
High internet use

Scores based on weightage, NPV has been scaled by using the assumptions (formulas can be referred in the excel file):
Calendar Expense Portfolio Browse Trip
Weightage Spreadsheet
& Email Report Tracker r Planner
NPV 3 3.28 2.00 2.89 5.04 10.00 6.19
Chance of
1.5 4 10 7 4 0 1
Leadership
Internet
1.5 7 3 7 0 10 10
usage
26.3 25.5 29.7 21.1 45.0 35.1
 Final
4 5 3 6 1 2
Ranking
Thus, based on the ranking it is found that Browser project is the best project Handstar Inc should ahead followed by Trip planner project
followed by Portfolio tracker project. Although, second rank and third rank project have lower IRR but we are doing it because it has non-
finacial advantages, which are important for the company.

3. In your opinion; is hiring an additional software development engineer justified?

We have a total of 10000 hours available for the projects to be completed. However, the total number of hours required is 13,025.
Hence, we propose three options for Handstar Inc,
 If in case Handstar Inc plans to complete all the 6 projects, it would need at least 2 more software development engineers. The
company will not be able to complete the projects Spreadsheet, Browser and Trip Planner, within the stipulated 10,000 hours of time,
thus missing out the NPV of $36, 92,187.50. Moreover, if there is no shortage of funds, hiring a second software development
engineer will ensure that Handstar Inc will be able to complete all 6 projects, with a profit of around $34, 27,187 in cumulative NPV.
Thus, it is justified that at least 2 additional software development engineers should be hired by Handstar Inc. The total cost incurred
would be equivalent to 2500*2*$53 = $265000
 Hiring one additional person will allow Handstar Inc to complete the 4 th project with cost incurred at 2500*$53 = $132,500.
However, the retained NPV on completing the fourth project is $28, 40,557.69. The profit thus earned would be approximately
around $27, 08,057 in cumulative NPV. However, if there is shortage of funds, we can hire only one additional engineer and pick
one more project, so that we don’t miss out on NPV
 If Handstar Inc wants the IRR no less than the discount rate of 12%, then we would not need an additional software development
engineer. We can pick three projects that can be completed within the 10000 hours of time.
Working File:

G2-PGPBL-Handstar
_Q1 and Q2.xlsx