Homework 2_Marina Malta

# Homework 2_Marina Malta - Homework 2 IE 6610 Marina Silva...

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Homework 2 IE 6610 Marina Silva Malta Fy1924 A benefit cost analysis is conducted for a training program to reduce operator assembly Errors, thus reduce scrap cost. Project benefit: Scrap reduction of \$700 in month 3 Scrap reduction of \$500 in month 4 Scrap reduction of \$450 in month 5 and 6 Project Costs: Training material preparation: \$400 in month 1 Employee training: \$840 in month 2 Reporting of program effectiveness will cost \$100 in month 6 Assume Cost of capital (i) =9.5% per year 1. Calculate Net Present Value? 2. Is this project is worth while? Why? 3. . What is the IRR of this project? Don’t have to solve for r; try r = 21.51% per month! 4. How many payback period does it take to start breaking even?

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Unformatted text preview:       n t t t r 1 CF NPV 3 4 5 6 \$700 \$500 \$450 \$450 \$100 1 2 \$400 \$840 Cash (+) Cash (-) ANSWERS: 1. Using:       n t t t r 1 CF NPV N CF NPV Accumulate 0 0 0 0 1 -400 -365,3 -365,3 2 -840 -700,5 -1065,8 3 700 533,1 -532,7 4 500 347,8 -184,9 5 450 285,8 100,9 6 350 203,0 303,9 2. The project is worthwhile because at the end of the time (6), the net present value is positive. 3. Using r=0,2151, NPV = 0 = IRR N CF NPV 0 0 0 1 -400 -329,2 2 -840 -569,0 3 700 390,0 4 500 229,3 5 450 170,0 6 350 108,7 4. It takes 5 periods to start breaking even. Yellow numbers in the question one shows it, when the accumulate starts to be positive....
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