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TRINE UNIVERSITY

BY:-

PRAMUKH SHEKAR

CHINTHAN

SANDEEP

SIDDARTHA

WASI

1

PROJECT RANKING

CONTENTS

Scenario 1.3-5

Scenario 2..5-7

Scenario 3..7-10

Scenario 410-11

2

PROJECT RANKING

Net Present Value (NPV) is defined as the difference between the present value of cash inflows

and the present values of cash outflows; it is used to analyze the profit of presented project or

investment.

Strengths of NPV:

NPV takes into account the future dollar value is less worth than todays dollar, the cash

It analyses the value of an investment

NPV takes into consideration the cost of capital and the risk inherent in making

3

PROJECT RANKING

Weaknesses of NPV:

The firms cost of capital requires guesswork and analyzation based on which high or

low assumptions of cost of capital will result in suboptimal or too good investments

respectively.

It cannot be implemented for comparison of two projects of different size.

In scenario 1, based on the data provided we use the formula of NPV as the difference of

Present value, Development cost and Commercialization cost to calculate NPV of the 9 projects

4

PROJECT RANKING

given with their present value and costs which vary accordingly. We thus calculate NPV of each

Ranking is done based on starting from highest NPV and follows accordingly, hence in our case

Limas project got highest NPV as 54, so we rank her 1 and we decide to Go. The values with

negative NPV are decided as Kill and the rest are ranked and decided to Go descending from

the highest NPV. In our case we rejected Echos and Alphas and decided to Kill as their NPV

NPV PI is defined as the analyzation of the profitability of the project based on NPVand

development cost.

NPV PI is useful for analyzing the project based on its financial performance.

5

PROJECT RANKING

Net present value does not generate the account on income generated to forecast the

Like NPV, NPV PI also takes into account the Idea that dollar is worth more than that of

years later.

Two projects that are mutually exclusive would not be considered as the PI process.

Works on the estimate of cash flows.

6

PROJECT RANKING

The process of adding development cost of projects based on their ranking is done until the

capacity of $25million is reached. the limit of $25million in scenario 2 reaches at project Beta.

Hence, the decision to go is made for every project accordingly. Alpha and echo are decided to

kill since their developmental costs exceeds $25m and they have negative NPV PI value.

Scenario 3

The above scenario is about the calculations generated to analyze the estimated commercial

value profitability index. Taking into account the factors such as NPV, financial planning at the

development stage.

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PROJECT RANKING

From the above given figure we can calculate the factors such as launch cost,

STRENTGHS OF ECV

NPV and ECV are relative and provide proper estimate of the project commercial

value.

Weakness of ECV

Difficult to adapt to changes based on external and internal conditions.

The commercial value of the project is calculated in this scenario and the Calculation of the

8

PROJECT RANKING

9

PROJECT RANKING

According to the tabulation, Tango is ranked 1and Sierra is ranked 2 and the rest follow

accordingly. The limit of the project at $25million of development cost is reached are

go and the rest are decided as kill. Alpha, Oscar and Lima are decided to kill as

explained earlier.

Scenario 4

The limit of $17.5 million is given in this scenario 4. The remaining procedure follows as

scenario 3.

Sierra:ECV PI=0.45,GO

10

PROJECT RANKING

REFERENCES:

http://www.businessdictionary.com/definition/net-present-value-NPV.html

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