REQUIRED PART (Homework # 8: Chapter 4, Exercise 3, pp )

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Rebecca Allen
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1 REQUIRED PART (Homework # 8: Chapter 4, Exercise 3, pp ) See your personal assignment on course web site; a table below is given AS A SAMPLE ONLY Problem definition You work for a large, successful organization, but lately many of the IT projects have experienced disappointing results. You have been put on the steering committee to improve the selection process. The organization has decided that any new projects selected for implementation must first meet strict financial measures. It has set minimum values for ROI, NPV, IRR, and payback period as specified below in a table: NEITHER costs (outflows) NOR revenues (inflows) are applicable for Year # 0 for each designated project.

2 Assignments: Based solely on the financial numbers presented below, answer questions 3A through 3E to determine which of the following projects should be implemented by the organization: 3A. Calculate NPV for each project, using a discount rates in INDIVIDUAL assignment. 3B. Calculate IRR for each project, using a discount rates in INDIVIDUAL assignment. 3C. Calculate ROI for each project, using a discount rates in INDIVIDUAL assignment. 3D. Calculate payback period for each project,, using a discount rates in INDIVIDUAL assignment. 3E. If the steering committee can choose only one project to work on, which should it be? IF NEEDED, please search the Internet for additional information (calculations) on NPV, IRR, ROI or even free online calculators. What to do? 1. Create Excel electronic spreadsheets that calculate ROI, NPV, IRR, and payback period for each of 4 projects. 2. Calculate ROI, NPV, IRR, and payback period MANUALLY (by writing corresponding formulas by yourself in the Excel application for NPV, IRR, ROI and Payback_Period) for each project. 3. Use Excel system and CALCULATE (NO HARD CODINF DATA AT ALL) with formulas required values of ROI, NPV, IRR, and PTP AUTOMATICALLY (using built-in Excel functions for NPV, IRR, ROI and PTP) for each project. 4. Put obtained numeric values into the Tables 3A, #b, 3C, and 3D below. 5. Use WSM method (create a corresponding Excel electronic spreadsheet similar to Table 3E below) and CAREFULLY CALCULATE numeric scores for each projects (projects ## 1,2,3 and 4) for each business indicator (NPV, IRR, ROI, and PTP), and put them into Table 3E. 6. Make a final judgment in statement 3F below: Which one of four (4) designated projects you will recommend to complete first? Justify (explain) your final judgment (about 1/3 or ½ page long). What to submit to instructor BEFORE designated deadline? 1. DOC file with all required populated tables (see below). 2. Microsoft Excel workbook with FIVE (5) Excel spreadsheets with AUTOMATIC (NO HARD CODED DATA to be calculated except INPUT DATA) calculations of 1) NPV, 2) ROI, 3) IRR, 4) PTP and 5) WSM for all projects. HW_08 REQUIRED PART FILE NAMING CONVENTION SectionID_ClassID_CS591_HW_04.DOC SectionID_ClassID_CS591_HW_04.XLS Example: 02_05_CS591_HW_04.DOC Example: 02_05_CS591_HW_04.XLS INSIDE SectionID_ClassID_CS591_HW_08.DOC file you must have

3 HW_08: Student Name: Table 3A. Calculate NPV for each project, using discount rates in INDIVIDUAL assignment. Project Number NPV numeric value, in $ Project 1 Project 2 Project 4 Table 3B. Calculate IRR for each project using discount rates in INDIVIDUAL assignment. Project Number IRR numeric value, in % Project 1 Project 2 Project 4 Table 3C. Calculate ROI for each project, using discount rates in INDIVIDUAL assignment. Project Number ROI numeric value, in % Project 1 Project 2 Project 4 Table 3D. Calculate payback period for each project using discount rates in INDIVIDUAL assignment. Project Number Project 1 Project 2 Project 4 Payback time period in Year number (1, 2, 3 or 4)

4 Table 3E. Calculation of numeric values in WSM for each project. WEIGHT of financial indicator See INDIVID UAL assignm ent for given value of NPV (in %) Financial indicator used, project SCORE, and project WEIGHTED SCORE NPV (Net Present Value) Project SCORE in terms of NPV Project WEIGHTED SCORE in terms of NPV Project 1 Project 2 Project 3 Project 4 TOTALS See INDIVID UAL assignm ent for given value of ROI (in %) ROI (Return on Investment) Project SCORE in terms of ROI Project WEIGHTED SCORE in terms of ROI See INDIVID UAL assignm ent for given value of IRR (in %) IRR (Internal Revenue Rate) Project SCORE in terms of IRR Project WEIGHTED SCORE in terms of IRR See INDIVID UAL assignm ent for given value of PTP (in %) PTP (Payback Time Period) Project SCORE in terms of PTP Inverted SCORE Project WEIGHTED SCORE in terms of PP TOTAL WEIGHTED SCORE for each project ( x 1,000) Your FINAL RANK of each project BEST, 2 nd Best, Third

5 Attention: all dimmed (with yellow color) cells in WSM final table (see Table 3E above) should be populated with CALCULATED in Excel data 3F. If the steering committee can choose only one project to work on, which should it be? Based on Total Weighted SCOREs values, I would recommend to select project # first. This is because. (provide your detailed justification here about 1/3 or ½ page long)....

6 HW_08 OPTIONAL PART (for extra points) FILE NAMING CONVENTION: SectionID_ClassID_CS591_HW_04_OPT.XLS Example: 02_05_CS591_HW_04_OPT.XLS OPTIONAL PART # 2 (for extra points) 1) Create a single Excel workbook with tabs as specified below. 2) All INPUT and OUTPUT data for all projects should be available in the first tab INPUTs and OUTPUTs (with GUI as specified below) 3) In remaining tabs implement/provide all required calculations (i.e. discounted Inflows or incomes, discounted OUTflows or expenses, discounted net cash flow, NPV, ROI, IRR, PTP) for projects ## 1, 2, 3 and 4 4) All calculations should be done AUTOMATICALLY using your own formulas or Excel built-in formulas NO HARD CODED DATA allowed inside spreadsheets for projects ## 1, 2, 3 and 4 5) Use links between to exchange data between spreadsheets tabs, for example from spreadsheet A to spreadsheet B.

7 6) Implement a functionality to assign different Discount Rates a) for each project and b) for each project year inside Discount Rate row. See examples in the figure above. Be sure to use different values of discount rates for a) each entire project (discount rate will be same for all project years) b) for each project year within one project (discount rate may change within the same project but for different project years) This means that, for example, for project # 3 you may have in INPUTs part of INPUTs- OUTCOMEs spreadsheet the following discount rates: Project year Discounts 0% 4% 34% 35% 20% In this case, your XLS solution MUST DELIVER those absolute values of discounts to corresponding formulas and calculate corresponding discounted values for each year in spreadsheet for Project # 3. For example, all calculations for project year 2 of project # 3 must be based on 34% of inflation. 7) Implement functionality to use different start dates for various projects see input date for project # 1 on the figure above. 8) If PTP is greater than Project Duration, then an application should display a warning message in corresponding cell: PTP is greater than project duration. 9) Excel application MUST clearly write a message Which project is the BEST for particular INPUT data sets, and, therefore, is recommended to be implemented by organization. The recommendation should be changed for each new INPUT data set. Use one of Excel built-in functions to implement that functionality. 10) Test your Excel app on input data for several projects (for example, input data for required part of this HW assignment). 11) Submit final Excel spreadsheet to instructor before designated deadline.

8 Review Process: In INPUTs part of INPUTS_OUTPUTS spreadsheet ONLY, the instructor will RANDOMLY change discount rates from XXX to ZZZ in Project # AAA for Project Year # BBB. The instructor should be able to see the corresponding CORRECT NEW OUTPUTs and decisions/ recommendations (which project is the best) in OUTPUTs part of the INPUTS_OUTPUTS spreadsheet ONLY. The bottom line: 1) NO absolute or hard coded values are allowed in any spreadsheet except INPUTs part of the INPUTS_OUTPUTS spreadsheet. 2) NO calculations are allowed in INPUTs part of the INPUTS_OUTPUTS spreadsheet. 3) All calculations should be automatic (using various your own formulas ot builtin formulas) and hidden inside Projects ## 1-4 spreadsheets. 4) The Excel application must identify and clearly display information about ONE (BEST) project for each set of input data.

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