Hw Solution Ch1-6

Topics: Project management, Net present value, Management Pages: 9 (1632 words) Published: February 4, 2013
HW Solution

Chapter 1: Case (One day in the life)

This case shows a glimpse of what it is like to be a project manager. It also underscores that being a project manager is more social than technical and that project managers spend the majority of their time interacting with various people who impact a project.

1.How effectively do you think Rachel spent her day?

You may argue that she is inefficient and does not have control over her time.

You may also argue that this is the nature of the job as expected, and that she is appropriately spending her time managing relations and keeping on top of things that affect the project.

Students with little work experience are often much more critical than those with work experience.

2.What does the case tell you about what it is like to be a project manager?

Rachel’s day underscores three key functions project managers spend their time performing:

a.Building and sustaining interpersonal relations. Project managers have to network and develop good working relations with team members and other project stakeholders. b.Information gathering and dissemination. Project managers are the information hub for their projects. They are in constant communication with various stakeholders, collecting information from various sources, and sending it to those who have a need to know. c.Decision-making. Project managers consult with various people to make decisions necessary to complete the project.

Chapter 2: Problems 2-5

2.Two new software projects are proposed to a young, start-up company. The Alpha project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, which project is better from a cash flow standpoint? Why?

Payback = Investment / Annual Savings

Project Alpha: $150,000 / $40,000 = 3.75 years

Project Beta: $200,000 / $50,000 = 4.0 years

Project Alpha is the better payback.

3.A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in the next five years. It will cost $50,000 to implement the project. If the required rate of return is 20 percent, conduct a discounted cash flow calculation to determine the NPV.

| |A | |2 |Exercise 2.3 | |3 |Net Present Value Example | |4 | | |5 | Project 2.3 | |Year 0 |

Since the NPV is positive, accept project.

4.You work for the 3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects. Your analysts predict that inflation rate will be a stable 3 percent over the next 7 years. Below is the cash flow information for each project. Which of the two projects would you fund if the decision is based only on financial information? Why?

|Omega | | | | |Alpha | | | | |Year |Inflow |Outflow |Netflow | |Year |Inflow |Outflow |Netflow | |Y0 |0 |$225,000 |-225,000 | |Y0 |0 |$300,000 |-300,000 | |Y1 |0 |190,000 |-190,000 | |Y1 |$50,000 |100,000...
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