Assignment 4

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School

Concordia University *

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440

Subject

Finance

Date

Jan 9, 2024

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docx

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Uploaded by oalmeneim

Question 1: (20 Marks) List at least 10 types of environmental impacts over the life cycle of the product shown in the figure below. Chart these as in Lecture 9A Slide#37, representing your judgment of the relative impact of each life cycle state.

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Question 2: (30 Marks) Table 1 breaks down the number of major jobs or activities involved the development and design of a 3-module machine. TABLE 1 Task Description Direct Predecessor Duration A Plan project and get approval 2 weeks B Hire and assign team A 4 weeks C Preliminary design B 10 weeks D Detail design of Module 1 C 6 weeks E Detail design of Module 2 C 5 weeks F Electrical Layout of Module 2 E 5 weeks G Electrical Layout of Module 1 D 7 weeks H Integrate Module 1 and 2 E, G 9 weeks I Detail Design of Module 3 C 7 weeks J Integrate Module 2 and 3 F 9 weeks K Get Electrical H/W for Module 2 and 3 J 4 weeks L Make Mechanical H/W for Module 2 and 3 J 5 weeks M Buy H/W for module 1 H 2 weeks N Install H/W Module 2 and 3 K,L 6 weeks · Draw a PERT diagram of the above project plan and determine the expected project duration. Now, based on the PERT diagram, let's calculate the expected project duration. Critical Path: A → B → C → I → J → K → N Expected Project Duration: TE (project) = TE (A) + TE (B) + TE (C) + TE (I) + TE (J) + TE (K) + TE (N) = 42 weeks .

Question 3 (50 Marks ) a) You work in a company that develop specialized flashlights to be used in the mining industry. In preparation for meeting with upper management you prepare a business case that you share with your team. The following are your assumptions: · The total cost of development is $600,000 over one year and it starts Y1Q1 · Ramp up cost is $90,000 for 9 month and it starts at Y1Q4 · The marketing and support cost is $50,000 for one year and it starts at Y2Q1 · You assumed that the company could sell 5,000 units/year for 5 years starting in Y2Q2 · The manufacturing cost is $40, and the wholesale price is $120 · The yearly discount rate is 10% Is this a good project to propose to the upper management? For the profitability of the project, we need NPV and IRR based on the assumptions given. As the project will generate sales for 5 years starting from Y2Q1, we should estimate the cash flow for up to Y6 to calculate if the project is profitable or not. NPV= Cashflow 1 /(1+r) 1 + Cashflow 2 /(1+r) 2 + Cashflow n /(1+r) n – initial investment From the data the cash flows for each year: Year 1: -600,000 (development cost) - 90,000 (ramp-up cost) Year 2: -50,000 (marketing cost) + (5,000 x $120) - (5,000 x $40) =350,000 $ Year 3-6: (5,000 x $120) - (5,000 x $40) = $ 400,000 per year Year 1: -$624,272.72 (PV of - 690,000$) Year 2: $289,256.19 (PV of $350,000) Year 3,4,5,6: $1,047,889.4 (PV of $400,000 per year for 4 years) by summing the present values of all cash flows: NPV = 712,872.87$

Since the NPV is Positive, the project is profitable. With an IRR of 43.606% b) During a meeting, the management is not confident that the company can sell the product at $120. You are tasked to estimate the minimum price that will render this project not profitable. What is that value? For a project to not generate any profit: total cost is equal to the total revenue, so: 690,000+ 50,000+ 5000x40x5= Yx5000x5 Thus, the minimum sales value that will make the project not profitable is ==> y=69.6$

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