Question

university of miami
department of industrial engineering
ien - 763 project management techniques
problem set 1
organization strategy and project selection
please respond to the problems below and submit one pdf file containing all the in - class exercises and one pdf file containing all the homework exercises. show all your work (properly formatted microsoft excel tables) in the document.
1 in - class problem 1
two new software projects are proposed to a start - up company. the alpha project will cost $150,000 to develop and is expected to have an annual net cash flow of $40,000. the beta project will cost $200,000 and is expected to have an annual net cash flow of $50,000. the company is very concerned about their cash flow. using the payback period, which project is better from a cash flow standpoint? why?
2 in - class problem 2
a five - year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in the next five years. it will cost $50,000 to implement the project. if the required rate of return is 20%, conduct a discounted cash flow calculation to determine the npv.
3 in - class - problem 3
you are the head of the project selection at simsox. your team is considering three different projects. based on past history, simsox expects at least a rate of return of 20%. given the following information for each project, and using both net present value (npv) and internal rate of return (irr) methods, which one should be simsoxs first priority? should simsox fund any of the other projects? if so, what should be the order of priority based on npv and irr? do both methods give the same order of priority, and if not, why?
project: dust devils

year	investment	revenue stream
1		50,000
2		250,000
3		350,000

Explanation:

Step1: Calculate pay - back period for Alpha project

Pay - back period is the time to recover the initial investment. For Alpha project, initial investment $I_{A}=\$150000$ and annual net cash flow $CF_{A}=\$40000$. The pay - back period $P_{A}=\frac{I_{A}}{CF_{A}}=\frac{150000}{40000}=3.75$ years.

Step2: Calculate pay - back period for Beta project

For Beta project, initial investment $I_{B}=\$200000$ and annual net cash flow $CF_{B}=\$50000$. The pay - back period $P_{B}=\frac{I_{B}}{CF_{B}}=\frac{200000}{50000}=4$ years.

Step3: Compare pay - back periods

Since $P_{A}

Answer:

The Alpha project is better from a cash - flow standpoint because its pay - back period of 3.75 years is less than the Beta project's pay - back period of 4 years.