Hello F. Naz,
I have provided instructions for my week three assignment, my graded week 3 assignment, and the correct figures for the assignment that I got wrong. Please let me know if you need anything else. Thank you for your help.
INSTRUCTIONS FOR WEEK 3
Write no more than a 450- to 1,350-word proposal which applies the methods for calculating a project's viability.
Select one of the following organizations:
Review the organization's annual report by researching your chosen organization.
Write a proposal advising the selected organization on obtaining funding and managing a project budget, to purchase equipment to increase worker safety. The initial investment is $25M and the yearly cash inflows are as follows:
Assume all cash flows are at the beginning of the period and a discount rate of 10%.
Include the following information in your project proposal:
THE ASSIGNMENT I PROVIDED WITH INSTRUCTOR FEEDBACK
This was a well-written summary on the topic. However, your NPV calculations seem to havebeen incorrect, as the yearly cash flows appear to have been discounted oneperiod too many.
55 / 70Project Proposal
After reviewing the annual report of Ford Motor Company a proposalis developed to advise the organization on obtaining funding and managing aproject budget to purchase equipment to increase worker safety. The initialinvestment is $25M and the yearly cash inflows are $5M for the second year,$10M for the third, $15M for the fourth, and $12M for the fifth year. The cashflows are at the beginning of the period and at a discount rate of 10%.Business needs are defined, including high-level deliverables to solveproblems. The Net Present Value (NPV), internal rate of return (IRR),profitability index, and payback methodologies are calculated to determine theprojects viability. Strengths and weaknesses are determined of each methodology.After determining these calculations the project is accepted or rejected, andthe rationale is explained for the decision.
Business Needs andDeliverables
Ford Motor Company has discovered that the company to increaseworker safety[R1] .To accomplish this Ford has decided to purchase some equipment. There are manyissues that surround safety such as insurance premiums, legal issues, morale, and health. The initial cost toimprove safety will pay off in the end by saving money and improving quality inthe areas mentioned. Deliverables to solve problems throughout this projectinclude defining the problem and scope of the project, measuring the currentprocess of performance, analyze the current performance and isolate theproblem, selecting the appropriate equipment, and control to ensure the targetis met with the new equipment.
NPV, IRR, ProfitabilityIndex, Payback Methodology: Strengths and Weaknesses
This projects viability must be determined and the strengths andweaknesses of each methodology. To do this the NPV, IRR, profitability index,and payback methodology must be calculated. Defining these terms is vital to geta clear picture. "Net present value is the comparison of the present valueof the payoffs less the present value of the costs of the project. If thepresent values of the payoffs exceed the present value of the costs, then it isa project that creates value" (Callahan, Stetz, & Brooks, 2007, p.131). The strength of NPV is that it measures the total profit, and thiscontrasts the project clearly. The weakness is that the minimum rate of returnchanges results radically. Next defining IRR is beneficial. "Internal rateof return is equal to the discount rate at which the investment's NPV equalszero" (Callahan, Stetz, & Brooks, 2007, p. 133). This calculation iscompared to the company's required rate of return to help determine theviability of a project. The strength of IRR is the ease of which one cancompare annual interest rate to costs of capital investment rates. The weaknessof IRR is manually calculating is difficult and results can be misleading. Profitability index compares costs andbenefits of project. A strength of the profitability index is that it disclosesthe up front initial commitment to be made to complete the project. A weaknessis that it is not in a measurement easily understood. The payback methodologyidentifies the amount of time it will take to recuperate the initialinvestment. A payback is uncomplicated to calculate, but it overlooks long-termpayoffs.
Calculations and Acceptanceor Rejection of the Project
Thecalculations to determine the projects viability are as follows: The NPV=$6.61M[R2] .The IRR=21.05%. Profitability index= .26. The payback is doubled by year fourand by year five payback reaches $42M. From the results of these calculationsthe project is feasible. The project is viable because it surpasses thediscount rate of 10% and the return on investment is doubled by year four. Whatis even more exciting is the project has a return on payback of $42M in thefifth year. This project is viable and is accepted.
Ford Motor Company is considering purchasing equipment to improvethe safety of the company. Before this project is accepted the business needsand deliverables are defined. Next NPV, IRR, profitability index, and paybackmethodology are defined along with strengths and weaknesses. Last thesecalculations are performed and the viability of the project is decided. Basedon the findings this project is viable and is accepted.
CORRECT EXCEL ANSWER KEY
Callahan,K.R., Stetz, G.S., & Brooks, L.M. (2007). Project management accounting. Hoboken, NJ: John Wiley & Sons, Inc.
[R1]Thissentence seems unfinished.
[R2]ThisNPV is incorrect. You seem to havediscounted for one too many periods for each cash flow. The cash flows occurred at the beginning ofeach year, not the end. This alsoimpacted your PI calculation.
This paper was supposed to be concerning week 3 assignment which was "After reviewing the annual report of Ford Motor Company a proposalis developed to advise the organization on obtaining funding and managing aproject budget to purchase equipment to increase worker safety". The paper you wrote is about DS steel corporation.
First , will be the saving in material cost, due to use of new technology the material wastage will be on lower side and the material to be used is available at lower cost, therefore the saving will be amounted to $10 million.
The another way of saving in cost is saving in overheads, if the machine intensive option isused
the fixed cost will be on lower side, as the machine cost will have lower amount of depreciation.