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    Ty SPM L7

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    sanil
    The document discusses various techniques for project evaluation and program management including cost-benefit analysis, product/system life cycle cash flows, cost-benefit evaluation, net profit, payback period, return on investment (ROI), net present value (NPV), discount factors, and internal rate of return (IRR). It provides examples and calculations for these techniques including an example calculating ROI for different projects based on a provided cash flow table.

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    Ty SPM L7

    Uploaded by

    sanil
    21 views15 pages
    The document discusses various techniques for project evaluation and program management including cost-benefit analysis, product/system life cycle cash flows, cost-benefit evaluation, net profit, payback period, return on investment (ROI), net present value (NPV), discount factors, and internal rate of return (IRR). It provides examples and calculations for these techniques including an example calculating ROI for different projects based on a provided cash flow table.

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    Dickens hai wo bhi sales wala

    Original Title

    TY_SPM_L7 PPT

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    The document discusses various techniques for project evaluation and program management including cost-benefit analysis, product/system life cycle cash flows, cost-benefit evaluation, net profit, payback period, return on investment (ROI), net present value (NPV), discount factors, and internal rate of return (IRR). It provides examples and calculations for these techniques including an example calculating ROI for different projects based on a provided cash flow table.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    21 views15 pages

    Ty SPM L7

    Uploaded by

    sanil
    The document discusses various techniques for project evaluation and program management including cost-benefit analysis, product/system life cycle cash flows, cost-benefit evaluation, net profit, payback period, return on investment (ROI), net present value (NPV), discount factors, and internal rate of return (IRR). It provides examples and calculations for these techniques including an example calculating ROI for different projects based on a provided cash flow table.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 15

    Chapter Two

    Project
    evaluation and
    programme
    management

    L7
    Review of Previous
    Lecture

    •Project portfolio •Cost benefit


    •business case
    management analysis

    •Product/system •Cost benefit


    life cycle cash Evaluation
    flows Techniques
    Net Profit ‘Year 0’ represents
    all the costs
    Year Cash-flow
    0 -100,000
    1 10,000 ‘Cash-flow’ is value
    of income less
    2 10,000
    outgoing
    3 10,000
    4 20,000
    5 100,000 Net profit
    represents the
    Net profit 50,000 difference
    Pay back
    period Cash- Accumul
    Year flow ated
    0 -100,000 -100,000
    • This is the time it 1 10,000 -90,000
    takes to start
    generating a 2 10,000 -80,000
    surplus of income 3 10,000 -70,000
    over outgoings.
    4 20,000 -50,000
    5 100,000 50,000
    ROI = Average annual profit

    Total investment

    Return on
    investment In the previous example

    (ROI)
    • average annual profit
    = 50,000/5
    = 10,000

    • ROI = 10,000/100,000 X 100 = 10%


    Video on ROI:
    https://www.youtube.com/watch?v=rIoUN0dkKGI
    Ex 2.4: Calculate the ROI of each project shown in table and decide which is
    the most worthwhile project.
    Year Project 1 Project 2 Project 3 Project 4
    0 -100000 -1000000 -100000 -120000
    1 10000 200000 30000 30000
    2 10000 200000 30000 30000
    3 10000 200000 30000 30000
    4 20000 200000 30000 30000
    5 100000 300000 30000 75000
    Net Profit 50000 100000 50000 75000
    ROI ? ? ? ?
    Which project is worth doing
    based on ROI?

    Poll

    Which project is worth doing


    based on Payback period?
    Net present value

    • If I gave you £100 now you could put it in savings account


    and get interest on it.
    • If the interest rate was 10% how much would I have to
    invest now to get £100 in a year’s time?
    • This figure is the net present value of £100 in one year’s
    time
    Discount factor = 1/(1+r)t

    r is the interest rate (e.g. 10% is 0.10)

    t is the number of years

    In the case of 10% rate and one year


    Discount Discount factor = 1/(1+0.10) = 0.9091
    factor In the case of 10% rate and two years

    Discount factor = 1/(1.10 x 1.10) =0.8294


    Year Cash-flow Discount factor Discounted cash flow
    0 -100,000 1.0000 -100,000
    1 10,000 0.9091 9,091
    2 10,000 0.8264 8,264
    3 10,000 0.7513 7,513
    4 20,000 0.6830 13,660
    5 100,000 0.6209 62,090
    NPV 618

    Applying discount factors


    •Internal rate of return (IRR) is the
    discount rate that would produce
    an NPV of 0 for the project

    Internal rate •Can be used to compare


    of return different investment opportunities

    •There is a Microsoft Excel function


    which can be used to calculate
    Year Cash-flow Q1e. Define
    Net Profit,
    0 -100,000 Payback Period
    and Returns on
    1 20,000 Investment.
    2 30,000 Calculate these
    values for the
    3 20,000 following cash
    flow forecast of
    4 30,000 a project.
    5 60,000
    Quick Recap
    • Net Profit
    • Pay Back Period
    • ROI
    • Net Present Value
    • Discount Factor
    • Internal Rate of Return
    Thank you

    Happy Learning

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