SAB5#22_Methods of selection project

Nota:

• You can choose one or more of these.

1. Present Value

   Nota:

   • The value today of future cash flows. Avoid confusing Present value and Planned value
2. Net present value
   1. Present value minus cost over many periods
      1. The project with the greatest NPV is selected
3. Internat rate of return (IRR)
   1. The higher is the better
4. Payback period
   1. Select one with the shorter payback period
5. Cost - benefit analysis
   1. Benefit/cost Benefit cost ratio should be greather than 1

      Nota:

      • Revenue is not the same as profit. If benefit cost radio > 1 then  benefits > costs. if benefit cost radio < 1 then benefits < costs. if benefit cost radio = 1 then benefits = costs.
6. Economic value added (EVA)

   Nota:

   • The project returns to the project more value than the initiative cost? Is not the same as Earn Value Analisys
   1. The project returns more value than the initiative cost?
7. Opportunity cost
   1. Is the value of the project not selected

      Nota:

      • Project A $45000 Project B $85000 Project Selectd = Project B Opportunity cost = $45000
8. Sunk cost
   1. Expended cost

      Nota:

      • Is the over cost of the project and not should be considered when deciding whether to continue a troubled project
9. Law of Dimishing returns
   1. A certain point, adding more inputs will not increase productivity
10. working capital
    1. Is the amount of money the company has available to invest
11. Depreciation
    1. Straight line depreciation

       Nota:

       • The same amount of depreciation is taken each year
    2. Accelerated depreciation

       Nota:

       • is faster than straight line depreciation
       1. Double declining balance
       2. Sum of the year digits