Reference no: EM131168333

Quiz: Final Exam

• The finance department, of your company, has allocated a budget of $43 million to your group. You, as the engineering manager, have to meet with the Chief Financial Officer (CFO) tomorrow morning to explain your budget. She has a finance degree so you have to communicate effectively with her to get the budget approved. Methodically and clearly describe how you will convince her to approve the budget - she will want to see numbers and data as proof. The finance office has set a MARR of 20%.

These 4 independent projects are under consideration and have mostly similar life times. Do not take tax and depreciation into consideration, because the error estimates on the capital costs are still too large - this is just a preliminary screening. This is all the information you have from your engineering team to work with:

Project A has

• Investment = $25 million in 2013 and payback time = 40 months
• NPV for 2013 to 2016 cash flows = $17.4 million using a TVM of 20%
• DCFRR = 26%

Project B has these details:

• Investment = $38 million in 2013 and payback time = 47 months
• NPV for 2013 to 2017 cash flows = $15.4 million using a TVM of 20%
• DCFRR = 52%

Project C has these details:

• Investment = $6 million in 2013 and payback time = 22 days
• NPV for 2013 to 2015 cash flows = $145 million using a TVM of 20%
• DCFRR = 1482%

Project D has these details:

• Investment = $20 million in 2013
• Net income reported below = revenues - operating expenses, and does not include the original investment:   Year                                         2013             2014                  2015              2016
• Net income ($ million)            6.5                   6.0                   5.0                   4.5