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Project Management (MGMT627)
Total Marks = 25 Due Date = 2nd December, 2015
Skillful Plastic Inc. is a large producer of plastic bathroom sanitary fittings and bathroom accessories in the local market. The management has decided to install a new Plastic Injection Molding Machine (550 Tons Capacity) in the production department, which will increase the overall production of the organization by 55 percent.
The Production department has submitted the project proposal that estimates the investment requirements as follow:
Initial Investment required for the new machine is Rs. 850,000 which will be paid in the first year to the importer. Furthermore, an amount of Rs. 275,000 is required for the installation of the machine. Delivery and installation of the machine is estimated to take almost one year.
The production manager also estimated that an amount of Rs. 25,000 annually required for the repair and maintenance of the machine. The total useful life of the machine is five years with an estimated salvage value of Rs. 465,000.
The project schedule calls for the benefits to begin in the second year and a project profit is estimated to be Rs. 495,000, Rs. 515,000, Rs. 525,000 and Rs.424,000 in the 2 nd , 3 rd , 4 th and 5 th years respectively. The project manager has an estimated hurdle rate of 13% for this investment and the expected rate of inflation is 3.5 percent over the life of the project.
The management has hired you as a consultant and given the task to evaluate the proposal using the following format and provide working where required:
Years Inflow Outflow Net Flow Discount Factor Net Present Value
Year – I
Year – II
Year – III
Year – IV
Year – V
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Formulas and example can be seen on Handouts Lecture No. 12 and Pg No. 101
but i could not get...
what is year 1?? is it 275,000
and i cant get discount fact and NPV could any one tell me???
The total useful life of the machine is five years with an estimated salvage value of Rs. 465,000.
is it year 1 price?
I am not sure may be it is 1 year price.
Machine k price 850000 ha or life 5 yrs, jb k after 5 yrs machine agr kabar me b sale k jae to 465000 k sale ho jae ge, that is known as salvage value.
plz the solution
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