Project Management: The Managerial Process (Mcgraw-hill Series Operations and Decision Sciences)
7th Edition
ISBN: 9781259666094
Author: Erik W. Larson, Clifford F. Gray
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 2, Problem 4E
You work for the 3T company, which expects to earn at least i8 percent on its investments. You have to choose between two similar projects. The following chart shows the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information? Why?
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Calculate the net present value (NPV) of and decide which one is better.
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4. Transrail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it will charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Rail Freight, is also considering bidding on the project. If Rail Freight does submit a bid, it figures to be a bid about $470,000. Transrail really wants this project and is considering a bid with only a 15% markup to $460,000 to ensure winning regardless of whether or not Rail Freight submits a bid.
a. Prepare a profit payoff table from Transrail’s point of view. (6 points)
b. For this payoff table find Transrail’s optimal decision using (1) the pessimistic approach, (2) the optimistic approach, and (3) minimax regret approach. (10 points)
c. If Rail Freight is known to submit bids on only 25% of the projects it considers, what decision should Transrail make? (5 points)
d. Given the information in (c), what is EVPI? (5 points)
Chapter 2 Solutions
Project Management: The Managerial Process (Mcgraw-hill Series Operations and Decision Sciences)
Ch. 2 - Describe the major components of the strategic...Ch. 2 - Explain the role projects play in the strategic...Ch. 2 - How are projects linked to the strategic plan?Ch. 2 - The portfolio of projects is typically represented...Ch. 2 - Why does the priority system described in this...Ch. 2 - Why should an organization not rely only on ROI to...Ch. 2 - Discuss the pros and cons of the checklist versus...Ch. 2 - You manage a hotel resort located on the South...Ch. 2 - Two new software projects are proposed to a young,...Ch. 2 - A five-year project has a projected net cash flow...
Ch. 2 - You work for the 3T company, which expects to earn...Ch. 2 - You are the head of the project selection team at...Ch. 2 - You are the head of the project selection team at...Ch. 2 - The Custom Bike Company has set up a weighted...Ch. 2 - What is our major problem?Ch. 2 - Identify some symptoms of the problem.Ch. 2 - What is the major cause of the problem?
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- 5. Describe one issue that potentially limits the effectiveness of project management software in businesses. How can this issue be overcome? 6. You have been assigned as the project manager for the SuperMegaExtraBig Systems Upgrade project. As part of your project risk analysis, you determined the top 10 risks in this project based on their expected monetary value (EMV). The data is below: Risk EMV $45,000 $38,000 $32,000 $21,500 $14,500 $12,200 $8,000 $6,500 $4,000 $4,000 A C F How much risk reserve (risk contingency) should you budget for this project? Justify your response. DEEGHI -→arrow_forwardEstimating project costs seems to be the main problem for Project 14321. You are to advise a reward mechanism for TSC management that will help with improving project cost estimationarrow_forwardInvestment timing option: left Table shows the investment made now (year 0); right Table shows the investment made 1 year later. Discount rate is r = 10%. Probability Year 0 0.50 -$28 0.50 -$10 $11 None of the others is correct $10 Year 1 $55 $22 If this project's uncertainty in Year 0 (two scenarios with 50% chance each) is completely gone right after the end of year 0, i.e., you will know which scenario turns out to be true right after Year 0, then what is the value of this investment timing option today? [Hint: value of the option = E[NPV with option] - E[NPV] =?] 3 Year 2 $0 Probability Year 0 0.50 $0 0.50 Year 1 -$28 -$28 Year 2 $55 $22arrow_forward
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