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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 0.64x12
=7.68)
Your task is to analyse the following four projects and determine which one will achieve
payback the fastest.
Project 1
YEAR
0
1
2
3
4
1
PROJECT A
16000
4600
5300
7000
5500
Project 2
YEAR
0
1
2
3
4
PROJECT B
22000
12400
9000
9570
10100
0
1
2
3
4
PROJECT C
31400
12600
8400
14480
10300
0
1
2
3
4
PROJECT D
12500
4200
3890
6000
5800
Project 3
YEAR
Project 4
YEAR
Which project will achieve payback in the fastest time?
Answer
2
EXERCISE 2) Cost Benefit Analysis
Compare the following projects to decide which is the best in terms of cost/benefit;
Project Parameters
Project Duration (Years)
Total units to be
constructed
Units for sale
Units for rent
Rental period of units
(years)
Units for sale after rental
period
Construction cost for each
unit
Sales office cost
Sales personnel cost per
year
Financing cost per year
Sale price of each unit
Sale price of each unit after
rental period
Rental price of each unit per
year
3
Project 1
Project 2
3
500
2
400
400
100
20
350
50
15
100
50
100000
90000
2000000
300000
3000000
250000
3000000
120000
70000
2500000
135000
80000
4000
4500
Cost Calculations
Project Costs
Construction cost
Sales office cost
Sales personnel cost
Financing cost
TOTAL
Project 1
Project 2
Project 1
Project 2
Project 1
Project 2
Benefit Calculations
Project Benefits
Income from sales
Income from sales after
rental period
Income from rentals
TOTAL
Costs and Benefits Comparison
Comparison
Benefits
Cost
Profit
4