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Chapter 02 Problems

The document discusses methods for selecting projects, including the pros and cons of checklist versus weighted factor methods. It also provides exercises involving calculating net present value and payback period to evaluate software projects, using a weighted scoring matrix to rate potential projects for a bike company.

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52 views1 page

Chapter 02 Problems

The document discusses methods for selecting projects, including the pros and cons of checklist versus weighted factor methods. It also provides exercises involving calculating net present value and payback period to evaluate software projects, using a weighted scoring matrix to rate potential projects for a bike company.

Uploaded by

lovely_mhmd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Review Questions

Discuss the pros and cons of the checklist versus the weighted factor methods of selecting
projects.

Exercises
1. Two new software projects are proposed to a young, start-up company. The Alpha
project will cost $150,000 to develop and is expected to have annual net cash flow of
$40,000. The Beta project will cost $200,000 to develop and is expected to have 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. Two new software projects are proposed to a young, start-up company. The Alpha
project will cost $150,000 to develop and is expected to have annual net cash flow of
$40,000. The Beta project will cost $200,000 to develop and is expected to have 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?

3. 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 percent, conduct a discounted cash flow calculation to
determine the NPV.

4. The Custom Bike Company has set up a weighted scoring matrix for evaluation of
potential projects. Below are three projects under consideration.
a. Using the scoring matrix below, which project would you rate highest? Lowest?
b. If the weight for “Strong Sponsor” is changed from 2.0 to 5.0, will the project selection
change? What are the three highest weighted project scores with this new weight?
c. Why is it important that the weights mirror critical strategic factors?

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