Reference no: EM131853473
The ABC Company has two project proposals currently under consideration and would like your help in selecting one of the two projects. They would like you to use both financial and non-financial selection criteria, and to defend your selection in a brief paragraph.
Details about each project are as follows:
Project Red: This project has an initial investment of $65,000 and projected cash inflows of $32,000 per year for three years.
Project Blue: This project has an initial investment of $71,000 and projected cash inflows of $37,000 per year for three years.
ABC Company's minimum desired rate-of-return is 22 percent, and they expect inflation to remain at 3 percent over the time period.
Complete the following four tasks in an Excel spreadsheet, with each task on a separate worksheet:
Task 1: Compare the two projects using the payback model (and include the rate of return for each). Use the example in Exhibit 2.3A on page 38 as a general guide for how to set up your worksheet. At the bottom of the worksheet, write one or two sentences describing which project you would select and why. Base your answer solely on the payback model.
Task 2: Compare the two projects using the net present value model. Use the example in Exhibit 2.3B on page 38 as a general guide for how to set up your worksheet. At the bottom of the worksheet, write one or two sentences describing which project you would select and why. Base your answer solely on the NPV model.
Task 3: Set up a project screening matrix as follows and create formulas in the "weighted total" column to calculate the weighted total for each project. At the bottom of the worksheet, write one or two sentences describing which project you would select and why. Base your answer solely on this screening matrix.
|
Criteria
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Strong sponsor
|
Supports business strategy
|
Urgency
|
Competition
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Fill market gap
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Weighted total
|
|
Weight
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1.0
|
3.0
|
2.0
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2.0
|
2.0
|
--
|
|
Red
|
6
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8
|
9
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5
|
5
|
|
|
Blue
|
7
|
6
|
8
|
4
|
4
|
|
Task 4: Select one of the two projects to move forward with. Write a paragraph describing why you selected the project. Base your selection on all of the screening methods you used.