# Project Management for Professional

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Project management for professional

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In this paper, six projects have been given out of which one has to be selected. There are

three projects which are used for updating existing products of Handstar and the other three will

give different opportunities. These projects can assist the company to achieve its long term goals

as well as to gain leadership position in the market. As per my opinion, all the six projects should

be selected. All the projects will be profitable for the management of Handstar. The reasons are

enumerated below:

ïƒ˜ It has been examined that each projects are temporary in nature. Each and every project

has an expected development time. The first project for example need 1250 hours for

development of the software.

ïƒ˜ The projects also assist in producing unique products. For instance, the updation project

use to update the tracking applications related to expense.

ïƒ˜ All the cases need resources, such as database, skilled employees, and funds.

ïƒ˜ The main two founders who are also the sponsors of these project will also provide all the

necessary resources to complete the projects

ïƒ˜ The potential customers of the company are users of the applications of Handstar.

But if we apply the NPV approach to evaluate the best project then result will differ. Not all the

projects will be selected only those projects will be chosen whose Net present value will be the

highest.

NET PRESENT VALUE APPROACH (NPV)

This approach is also used as an intrinsic value to determine the market value of any firm

or organization. The NPV approach is mostly used in selecting a project viable for business.

The NPV is determining after considering all the present value of estimated cash flows

and deducting it with the initial investment (Hopkinson, 2017).

The discounting rate of 12% has been considered to calculate the NPV of projects. The product

life cycle is 3 years. Discounting factors will be applied to determine the present values of the

project cash flows (Jagannathan, 2017).

Available development hours with four different software developers in a single year = 2500 X 4

= 10,000 hours.

three projects which are used for updating existing products of Handstar and the other three will

give different opportunities. These projects can assist the company to achieve its long term goals

as well as to gain leadership position in the market. As per my opinion, all the six projects should

be selected. All the projects will be profitable for the management of Handstar. The reasons are

enumerated below:

ïƒ˜ It has been examined that each projects are temporary in nature. Each and every project

has an expected development time. The first project for example need 1250 hours for

development of the software.

ïƒ˜ The projects also assist in producing unique products. For instance, the updation project

use to update the tracking applications related to expense.

ïƒ˜ All the cases need resources, such as database, skilled employees, and funds.

ïƒ˜ The main two founders who are also the sponsors of these project will also provide all the

necessary resources to complete the projects

ïƒ˜ The potential customers of the company are users of the applications of Handstar.

But if we apply the NPV approach to evaluate the best project then result will differ. Not all the

projects will be selected only those projects will be chosen whose Net present value will be the

highest.

NET PRESENT VALUE APPROACH (NPV)

This approach is also used as an intrinsic value to determine the market value of any firm

or organization. The NPV approach is mostly used in selecting a project viable for business.

The NPV is determining after considering all the present value of estimated cash flows

and deducting it with the initial investment (Hopkinson, 2017).

The discounting rate of 12% has been considered to calculate the NPV of projects. The product

life cycle is 3 years. Discounting factors will be applied to determine the present values of the

project cash flows (Jagannathan, 2017).

Available development hours with four different software developers in a single year = 2500 X 4

= 10,000 hours.

Handstar Incorporation

Project Evaluation

Based on NPV Approach

Project 1

Integration of Calendar App with Email App

Hours required : 1250 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present Value of

Cash Inflows

1 750,000 1.1200 0.8929 669,642.86

2 675,000 1.2544 0.7972 538,105.87

3 607,500 1.4049 0.7118 432,406.50

Present Value of Cash Inflows 1,640,155.23

Less: Cost of the Project (1250 hours x $ 52 per hour) (65,000.00)

Net Present Value (NPV) 1,575,155.23

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 750,000

Less: Decline @10% (75,000)

Year 2 Estimated revenue 675,000

Less: Decline @10% (67,500)

Year 3 Estimated revenue 607,500

Project Evaluation

Based on NPV Approach

Project 1

Integration of Calendar App with Email App

Hours required : 1250 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present Value of

Cash Inflows

1 750,000 1.1200 0.8929 669,642.86

2 675,000 1.2544 0.7972 538,105.87

3 607,500 1.4049 0.7118 432,406.50

Present Value of Cash Inflows 1,640,155.23

Less: Cost of the Project (1250 hours x $ 52 per hour) (65,000.00)

Net Present Value (NPV) 1,575,155.23

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 750,000

Less: Decline @10% (75,000)

Year 2 Estimated revenue 675,000

Less: Decline @10% (67,500)

Year 3 Estimated revenue 607,500

Project 2

Expense Report App Updating

Hours required : 400 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 250,000 1.1200 0.8929 223,214.29

2 262,500 1.2544 0.7972 209,263.39

3 275,625 1.4049 0.7118 196,184.43

Present Value of Cash Inflows 628,662.11

Less: Cost of the Project (400 hours x $ 52 per hour) (20,800.00)

Net Present Value (NPV) 607,862.11

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 250,000

Add: Growth @5% 12,500

Year 2 Estimated revenue 262,500

Add: Growth @5% 13,125

Year 3 Estimated revenue 275,625

Expense Report App Updating

Hours required : 400 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 250,000 1.1200 0.8929 223,214.29

2 262,500 1.2544 0.7972 209,263.39

3 275,625 1.4049 0.7118 196,184.43

Present Value of Cash Inflows 628,662.11

Less: Cost of the Project (400 hours x $ 52 per hour) (20,800.00)

Net Present Value (NPV) 607,862.11

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 250,000

Add: Growth @5% 12,500

Year 2 Estimated revenue 262,500

Add: Growth @5% 13,125

Year 3 Estimated revenue 275,625

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Project 3

Enhancement of Portfolio Tracking App

Hours required : 750 Hours

Year

Estimated

Cash

Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 500,000

1.120

0 0.8929 446,428.57

2 525,000

1.254

4 0.7972 418,526.79

3 551,250

1.404

9 0.7118 392,368.86

Present Value of Cash Inflows 1,257,324.22

Less: Cost of the Project (750 hours x $ 52 per hour) (39,000.00)

Net Present Value (NPV) 1,218,324.22

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 500,000

Add: Growth @5% 25,000

Year 2 Estimated revenue 525,000

Add: Growth @5% 26,250

Year 3 Estimated revenue 551,250

Enhancement of Portfolio Tracking App

Hours required : 750 Hours

Year

Estimated

Cash

Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 500,000

1.120

0 0.8929 446,428.57

2 525,000

1.254

4 0.7972 418,526.79

3 551,250

1.404

9 0.7118 392,368.86

Present Value of Cash Inflows 1,257,324.22

Less: Cost of the Project (750 hours x $ 52 per hour) (39,000.00)

Net Present Value (NPV) 1,218,324.22

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 500,000

Add: Growth @5% 25,000

Year 2 Estimated revenue 525,000

Add: Growth @5% 26,250

Year 3 Estimated revenue 551,250

Project 4

Development of Spreadsheet App

Hours required : 2500 Hours

Year

Estimated

Cash

Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 1,000,000 1.1200 0.8929 892,857.14

2 1,100,000 1.2544 0.7972 876,913.27

3 1,210,000 1.4049 0.7118 861,254.10

Present Value of Cash Inflows 2,631,024.51

Less: Cost of the Project (2500 hours x $ 52 per hour) (130,000.00)

Net Present Value (NPV) 2,501,024.51

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 1,000,000

Add: Growth @10% 100,000

Year 2 Estimated revenue 1,100,000

Add: Growth @10% 110,000

Year 3 Estimated revenue 1,210,000

Development of Spreadsheet App

Hours required : 2500 Hours

Year

Estimated

Cash

Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 1,000,000 1.1200 0.8929 892,857.14

2 1,100,000 1.2544 0.7972 876,913.27

3 1,210,000 1.4049 0.7118 861,254.10

Present Value of Cash Inflows 2,631,024.51

Less: Cost of the Project (2500 hours x $ 52 per hour) (130,000.00)

Net Present Value (NPV) 2,501,024.51

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 1,000,000

Add: Growth @10% 100,000

Year 2 Estimated revenue 1,100,000

Add: Growth @10% 110,000

Year 3 Estimated revenue 1,210,000

Project 5

Development of Web Browsing App

Hours required : 1875 Hours

Yea

r

Estimated

Cash Inflows

(Note - 1)

Present

Value

Factor

@12%

Present

Value of

Cash Inflows

1 2,500,000 1.1200 0.8929 2,232,142.86

2 2,875,000 1.2544 0.7972 2,291,932.40

3 3,306,250 1.4049 0.7118 2,353,323.44

Present Value of Cash Inflows 6,877,398.70

Less: Cost of the Project (1875 hours x $ 52 per hour) (97,500.00)

Net Present Value (NPV) 6,779,898.70

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 2,500,000

Add: Growth @15% 375,000

Year 2 Estimated revenue 2,875,000

Add: Growth @15% 431,250

Year 3 Estimated revenue 3,306,250

Development of Web Browsing App

Hours required : 1875 Hours

Yea

r

Estimated

Cash Inflows

(Note - 1)

Present

Value

Factor

@12%

Present

Value of

Cash Inflows

1 2,500,000 1.1200 0.8929 2,232,142.86

2 2,875,000 1.2544 0.7972 2,291,932.40

3 3,306,250 1.4049 0.7118 2,353,323.44

Present Value of Cash Inflows 6,877,398.70

Less: Cost of the Project (1875 hours x $ 52 per hour) (97,500.00)

Net Present Value (NPV) 6,779,898.70

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 2,500,000

Add: Growth @15% 375,000

Year 2 Estimated revenue 2,875,000

Add: Growth @15% 431,250

Year 3 Estimated revenue 3,306,250

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Project 6

Development of Trip Planner App

Hours required : 6250 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 1,300,000 1.1200 0.8929 1,160,714.29

2 1,365,000 1.2544 0.7972 1,088,169.64

3 1,433,250 1.4049 0.7118 1,020,159.04

Present Value of Cash Inflows 3,269,042.97

Less: Cost of the Project (6250 hours x $ 52 per hour) (325,000.00)

Net Present Value (NPV) 2,944,042.97

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 1,300,000

Add: Growth @5% 65,000

Year 2 Estimated revenue 1,365,000

Add: Growth @5% 68,250

Year 3 Estimated revenue 1,433,250

Project

Serial

No.

Project Name Project

Life

Hours

required

Project

Cost NPV

Rank

(based on

NPV)

1 Integration of Calendar App with Email App 3 Years 1250 65,000 1,575,155 IV

2 Expense Report App Updating 3 Years 400 20,800 607,862 VI

3 Enhancement of Portfolio Tracking App 3 Years 750 39,000 1,218,324 V

4 Development of Spreadsheet App 3 Years 2500 130,000 2,501,025 III

5 Development of Web Browsing App 3 Years 1875 97,500 6,779,899 I

6 Development of Trip Planner App 3 Years 6250 325,000 2,944,043 II

Development of Trip Planner App

Hours required : 6250 Hours

Year

Estimated

Cash Inflows

(Note - 1)

Present Value

Factor @12%

Present

Value of

Cash Inflows

1 1,300,000 1.1200 0.8929 1,160,714.29

2 1,365,000 1.2544 0.7972 1,088,169.64

3 1,433,250 1.4049 0.7118 1,020,159.04

Present Value of Cash Inflows 3,269,042.97

Less: Cost of the Project (6250 hours x $ 52 per hour) (325,000.00)

Net Present Value (NPV) 2,944,042.97

Note - 1

Computation of Estimated Cash Inflows

Particulars Amount in $

Year 1 Estimated revenue 1,300,000

Add: Growth @5% 65,000

Year 2 Estimated revenue 1,365,000

Add: Growth @5% 68,250

Year 3 Estimated revenue 1,433,250

Project

Serial

No.

Project Name Project

Life

Hours

required

Project

Cost NPV

Rank

(based on

NPV)

1 Integration of Calendar App with Email App 3 Years 1250 65,000 1,575,155 IV

2 Expense Report App Updating 3 Years 400 20,800 607,862 VI

3 Enhancement of Portfolio Tracking App 3 Years 750 39,000 1,218,324 V

4 Development of Spreadsheet App 3 Years 2500 130,000 2,501,025 III

5 Development of Web Browsing App 3 Years 1875 97,500 6,779,899 I

6 Development of Trip Planner App 3 Years 6250 325,000 2,944,043 II

Assumption taken:

1) To compute the NPV it has been assumed that on the same date the projects has been

completed and on the completion of every project the product life cycle time starts. The

growth rate of 5% has also been assumed.

As per the above ranking as per NPV method the four projects seems to be viable and should be

selected. If we consider all these 4 projects then only 9775 labor hours will be required.

It can be studied from the above table that project 2 and project 3 are rejected due to lower value

of NPV and other 4 projects give higher NPV value.

Project 5 is the most optimum project which will be beneficial for the company and will provide

huge revenue to the firm. The next suitable project is project 6 which gives NPV of 2944043.

The third most viable project which is used for development and improvement of spreadsheet

application provide NPV of 2501025.

1) To compute the NPV it has been assumed that on the same date the projects has been

completed and on the completion of every project the product life cycle time starts. The

growth rate of 5% has also been assumed.

As per the above ranking as per NPV method the four projects seems to be viable and should be

selected. If we consider all these 4 projects then only 9775 labor hours will be required.

It can be studied from the above table that project 2 and project 3 are rejected due to lower value

of NPV and other 4 projects give higher NPV value.

Project 5 is the most optimum project which will be beneficial for the company and will provide

huge revenue to the firm. The next suitable project is project 6 which gives NPV of 2944043.

The third most viable project which is used for development and improvement of spreadsheet

application provide NPV of 2501025.

References

Hopkinson, M. (2017). Net Present value and risk modelling for projects. Routledge.

Jagannathan, R., Matsa, D. A., Meier, I., & Tarhan, V. (2016). Why do firms use high discount

rates?. Journal of Financial Economics, 120(3), 445-463.

Hopkinson, M. (2017). Net Present value and risk modelling for projects. Routledge.

Jagannathan, R., Matsa, D. A., Meier, I., & Tarhan, V. (2016). Why do firms use high discount

rates?. Journal of Financial Economics, 120(3), 445-463.

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