MPM 581 Basic Project Financial Management & Cost Estimating Tools

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MPM 581 Basic Project Financial Management & Cost Estimating Tools

 

Practical Examples Workshop 1

 

Please carry out the following basic tasks to give you some practical insight into the use of common project financial management and cost estimating tools and techniques.

 

 

EXERCISE 1) Establish project payback time

 

Example Project:

 

Initial investment in Year 0  $34000

 

Payback           Year 1 $11780 ($34000 – $11780) $ 22220 left to pay

Year 2 $14760 ($22220 – $14760) $7460 left to pay

Year 3 $11680   ($7460/$11680) 0.64

 

The investment will be paid back in 2.64 years (in approximately the month of July 0.64×12 =7.68)

 

 

Your task is to analyse the following four projects and determine which one will achieve payback the fastest.

 

Project 1

 

YEAR

PROJECT A
0 16000
1 4600
2 5300
3 7000
4 5500

 

 

 

 

 

 

Project 2

 

YEAR

PROJECT B
0 22000
1 12400
2 9000
3 9570
4 10100

 

 

 

Project 3

 

YEAR

PROJECT C
0 31400
1 12600
2 8400
3 14480
4 10300

 

 

Project 4

 

YEAR

PROJECT D
0 12500
1 4200
2 3890
3 6000
4 5800

 

 

Which project will achieve payback in the fastest time?

 

Answer

 

 

 

 

 

EXERCISE 2) Cost Benefit Analysis

 

 

Compare the following projects to decide which is the best in terms of cost/benefit;

 

 

Project Parameters Project 1 Project 2
Project Duration (Years) 3 2
Total units to be constructed 500 400
Units for sale 400 350
Units for rent 100 50
Rental period of units (years) 20 15
Units for sale after rental period 100 50
Construction cost for each unit 100000 90000
Sales office cost 2000000 3000000
Sales personnel cost per year 300000 250000
Financing cost per year 3000000 2500000
Sale price of each unit 120000 135000
Sale price of each unit after rental period 70000 80000
Rental price of each unit per year 4000 4500

 

 

 

 

Cost Calculations

 

Project Costs Project 1 Project 2
Construction cost    
Sales office cost    
Sales personnel cost    
Financing cost    
TOTAL    

 

Benefit Calculations

 

Project Benefits Project 1 Project 2
Income from sales    
Income from sales after rental period    
Income from rentals    
TOTAL    

 

Costs and Benefits Comparison

 

Comparison Project 1 Project 2
Benefits    
Cost    
Profit    

 

 

 

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