2 - Checklist
Project Checklist model for the four alternatives projects:
Project Criteria Low Medium High
Payoff potential X
Project A Lack of risk X
Safety X
Competitive advantage X
Payoff potential X
Project B Lack of risk X
Safety X
Competitive advantage X
Payoff potential X
Project C Lack of risk X
Safety X
Competitive advantage X
Payoff potential X
Project D Lack of risk X
Safety X
Competitive advantage X
Based on this tabular checklist, Project C have 2 criteria that are Low however, Project D
have 2 criteria that are High. Also, Project D have the other two criteria Medium. Hence,
The best project to select is D and the worst project is C.
Problem #1
3 – Scoring Model
Project scoring model for the four alternatives projects:
Project Criteria Weight of Score Weighted Score
Importance
Payoff potential 4 3 12
Project A Lack of risk 3 1 3
Safety 1 3 3
Competitive advantage 3 2 6
24
Payoff potential 4 1 4
Project B Lack of risk 3 2 6
Safety 1 2 2
Competitive advantage 3 2 6
18
Payoff potential 4 2 8
Project C Lack of risk 3 2 6
Safety 1 1 1
Competitive advantage 3 1 3
18
Payoff potential 4 3 12
Project D Lack of risk 3 3 9
Safety 1 2 2
Competitive advantage 3 2 6
29
As per the importance of weight of each criteria and the total weighted scores, Project D
have the highest score of 29, thus Project D is the best to choose. This reassess shows
that Project B and C are the lowest with same score.
[2]
Problem #1
5 – Screening Matrix
Project scoring model for the four alternatives projects:
Project Criteria Weight of Score Weighted Score
Importance
Quality 5 1 5
Project Cost 3 7 21
Alpha Speed to Market 7 5 35
Visibility 5 3 15
Reliability 1 5 5
81
Quality 5 3 15
Project Beta Cost 3 7 21
Speed to Market 7 5 35
Visibility 5 1 5
Reliability 1 5 5
81
Quality 5 3 15
Project Cost 3 5 15
Gamma Speed to Market 7 3 21
Visibility 5 5 25
Reliability 1 7 7
83
Quality 5 5 25
Project Delta Cost 3 3 9
Speed to Market 7 1 7
Visibility 5 3 15
Reliability 1 7 7
63
According to the weighted scoring model above, the Project Gamma have the highest 83,
hence the most likely to be implemented.
[3]
Problem #1
6 – Profile Model
Project profile model:
The efficient frontier should be within limits of our parameter, so it will be in the area of
F, C, B and E. Project A and D are outside the limits of risk and return.
First if we compare C and B as they have same r, B is less risky, So B is part of the
frontier.
Second, F have low return and mid risk.
Thirdly, E present the highest risk and highest return.
So the frontier line should be between project B and E, so retained.
[4]
Problem #1
8 – Net Present Value
I0 450,000
Project A Cash Flow C 150,000
n 5 years
I0 400,000
Project B Cash Flow y1 0
Cash Flow y2 50,000
Cash Flow y3 200,000
Cash Flow y4 300,000
Cash Flow y5 200,000
n 5 years
r=0.12
p=0.05
NPV = I0 + Σ Ft/(1 + r + p)t
Cash flow are annuity: PV annuity = (C/(r+p))*(1-1/(1+r+p)t)
$
NPV A 29,901.92
$
NPV B 12,717.03
Both project resulted in positive NPV. The higher the NPV the better (higher return), thus
Project A will be selected.
Excel sheet calculations:
[5]
Problem #1
9 – Net Present Value
NPV B $ (451.26) For simplicity, discount factor= 1.085
The NPV of this investment is negative -451.26 which shows that it did not even return
the 8.5%. The project is a bad investment.
Excel sheet calculations:
[6]
Problem #1
11 – Options Model
Scenario 1: 50/50 Chance
NPV = I0 + Σ Ft/(1 + r + p)t
Since t goes to infinity, it’s a perpetuity -> Σ Ft/(1 + r + p)t= Ft/r
NPV = I0 + Ft/r
NPV 1 $ 1,500,000.00
NPV of scenario 1 is positive; the company can undertake the project.
Scenario 1: 75/25 After waiting a year
NPV 2 $ 2,440,476
The NPV of scenario 2 is greater than NPV1, thus it favorable to wait a year to invest in
the project.
Excel sheet calculations:
[7]
Problem #1
12 – Options Model
Scenario 1: 40/60 Chance
NPV = I0 + Σ Ft/(1 + r + p)t
Since t goes to infinity, it’s a perpetuity -> Σ Ft/(1 + r + p)t= Ft/r
NPV = I0 + Ft/r
NPV 1 $ (1,933,333)
NPV of scenario 1 is negative; the project is not viable.
Scenario 1: 70/30 After waiting a year
NPV 2 $ 518,841
The NPV of scenario 2 is positive, thus its favorable to wait a year to invest in the
project.
Excel sheet calculations:
[8]