Phuket Beach Hotel

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

a. What is each project's single-cycle NPV? Now apply the replacement chain approach and then repeat the analysis using the equivalent annual annuity approach. Which project should be chosen, S or L? Why?

[D] Determine the NPV for each of these projects? Should they be accepted – explain why?

What is each project’s net present value? If the projects are mutually exclusive, which of these projects should you accept based on the NPV?

While constructing cash flows for each of the options, the expenditure of $250,000 already incurred by Monkey manufacturing, should be treated as Sunk Cost. A sunk cost is something that is already been incurred in the past and will not affect the decision to accept/reject any future projects. Given this expenditure on computer hardware and software has already been incurred and cannot be reversed, it should be treated as a Sunk cost and as such will not be considered while calculating the cash flow for each of the options

This result allows us to admit that a variation in the terminal value will generate a larger boost in the NPV of the project. That is, the NPV of the project is definitely very sensitive to its terminal value and a variation in its value will create an even larger effect in the NPV of the project.

One of the biggest decisions any organization has to make is related in one way or another to the projects they choose to undertake. There are many factors to be considered before an organization decides to take up any project brought forward for the business. The most viable option needs to be chosen wisely with the goals and requirements of the organization in mind. Choosing a project using the right method is therefore of utmost importance and it will therefore determine the strategy to be used to carry out the project. There are various methods that an organization can use to select a project and each selection method is different for different organizations. These methods include the calculation of Net Present Value so that all the proposed projects in the project portfolio management system can be compared.

| Plant-leasing costsDepreciation-plant equipmentProperty taxes on plant equipmentFire insurance on plant equipmentMarketing promotionMarketing salariesDistribution costsCustomer-service costs

b) Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal

The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR).

In conclusion, there are similarities between some investment rules. NPV, IRR and PI consider the time value of money while the left rules do not. Although it is more complicated when computing with discount rate, the more accurate and detailed result can be work out so it is worth to do so, just like the rules discounted payback period and payback period. Moreover, IRR can give the accurate result to manager quickly, but it may affect by the non-normal cash flow. Therefore using NPV may be the right choice of rules to evaluating mutually exclusive projects. As a result, managers should choose different

6 years 800, 000 to 1,200 000 (THB) 900, 000 (THB) 4, 672, 000 (THB)

Capital costs: include the cost of the actual building, your equipment and furniture, cars etc. These are usually once off

Estimation of the capital cost of a project provides the basic information to decide its pattern of financing and profitability. If the cost of the project is not estimated correctly, the preparation of cash flow and profitability estimates will be futile exercise because the amount of depreciation, interest and dividend will change with the change in capital cost of the project. An entrepreneur has to tie up the resources according to the estimates of the cost of the project.

We can also compute for per unit cost of food (as item sold and cost of sale) by dividing the total Food Revenue/Food Cost of Sale by Unit Rental Count giving us P1,000 and P450 respectively. We will then try to create a forecasted income statement based on 40% occupancy (assuming only travel tour customers will utilize the hotel). 40% occupancy is 3,942 unit rentals (9,855 x 0.4).