Mid-term Exam -
1. Two investments (A and B, below) have been proposed to the Capital Investment committee of your organization;
a. The required rate of return for your company is 10%. What is the NPV for each investment? Assume the initial investments ($150k and $75k) occur at the beginning of the year and all other costs and benefits occur at the end of the year indicated.
b. What is the payback period for each investment?
c. Which investment would you recommend and why?
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Investment A
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Year 1
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Year 1
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Year 2
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Year 3
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Year 4
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Year 5
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Costs:
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$150,000
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$10,000
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$10,000
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$10,000
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$10,000
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$10,000
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Benefits:
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-
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$75,000
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$55,000
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$35,000
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$20,000
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$15,000
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Investment B
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Year 0
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Year 1
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Year 2
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Year 3
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Year 4
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Year 5
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Costs:
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$75,000
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Benefits:
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$45,000
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$15,000
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$10,000
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$10,000
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$15,000
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2. Unfortunately, the Capital Investment Committee refused to approve your recommendation (Problem 1) since you did not consider the uncertainty inherent in these types of investments. You pull out your very dog-eared text from PMAN 635 and repeat your analysis, this time using Crystal Ball and the following information:
a. Investment A:
i. Year 0 Investment cost: Triangular distribution (optimistic: $125,000; most likely: $150,000; pessimistic: $200,000)
ii. Year 1-5 operating cost: Normal distribution (mean of $10,000, standard deviation of $2,000)
iii. Year 1 Benefits: Normal distribution (mean of $75,000, standard deviation of $20,000)
iv. Year 2 Benefits: Normal distribution (mean of $55,000, standard deviation of $15,000)
v. Year 3 Benefits: Normal distribution (mean of $35,000, standard deviation of $10,000)
vi. Year 4 Benefits: Normal distribution (mean of $20,000, standard deviation of $5000)
vii. Year 5 Benefits: Normal distribution (mean of $15,000, standard deviation of $5,000)
b. Investment B:
i. Year 0 Investment cost: Uniform distribution (Minimum: $65,000; Maximum: $85,000)
ii. Year 1 Benefits: Normal distribution (mean of $45,000, standard deviation of $20,000)
iii. Year 2 Benefits: Normal distribution (mean of $15,000, standard deviation of $5,000)
iv. Year 3 Benefits: Normal distribution (mean of $10,000, standard deviation of $3,000)
v. Year 4 Benefits: Normal distribution (mean of $10,000, standard deviation of $3,000)
vi. Year 5 Benefits: Normal distribution (mean of $15,000, standard deviation of $5,000)
c. If the IRR is still 10%, use Crystal Ball to calculate the median NPV for each investment.
d. What is the probability that Investment B will be better than Investment A? Be sure to show all work.
3. Using the forward and backward pass method identify the Critical Path and total duration for the following network. Show all work.
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Task
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duration
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Pred
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a
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10
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b
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5
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a
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c
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2
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a
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d
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3
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b
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e
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5
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c
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f
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5
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d, e
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4. For the network below:
a. Calculate T-E and Variance for each activity. Assume the durations have 90% certainty.
b. Calculate the expected duration of the network. Do not use Crystal Ball.
c. What is the probability the network will take no more than 21 days? Use the Z-table or Excel's NORMDIST function, not Crystal Ball. Be sure to show all work.
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Task
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Optimistic Duration
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Most Likely duration
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Pessimistic Duration
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T-E
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Var
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Pred
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A
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8
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10
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14
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B
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4
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5
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7
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A
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C
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8
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8
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9
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A
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D
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3
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3
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3
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B, C
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5. You are preparing an engineering cost estimate for the Kuraiz-Reconda Fiber Optic Cable (KRFOC) project. You believe it will most likely take 500 hours, but if things go right, it may take as little as 400 hours; if things go wrong, it may take as much as 800 hours. Your Finance folks tell you that labor rates have a mean of $100 an hour (with a σ of $25). Using a triangular distribution for labor hours and a normal distribution for labor rates, you then dust off your Crystal Ball (you remind yourself to send a thank you note to your old UMUC instructor) and forecast your engineering costs.
In opening your morning mail, however, you see a proposal from Engineers 'R Us to do all the KRFOC engineering for a fixed price of $60,000. Comparing that with your estimate of doing the work yourself:
a. What is the probability that the price for completing the work yourself will be less than the Engineers 'R Us offer? Show all work.
b. Would you recommend the work be done in-house or accept the fixed price offer from Engineers 'R Us? Why?
6. Please answer discussion question 6 at the end of Chapter 4 of Mantel. Limit your answer to 200 words or less.
7. Enter the tasks and resources in the attached file (Midterm Question 7- Fall 2016.doc) into MS Project. Note that there are two tables in this file. What is the total duration and cost for your project? Include your MSP project file with your submission.
8. Please answer each of the following:
a. What is the expected time to complete a task with an optimistic (a), most likely (m), and pessimistic (b) times of 2, 4 and 7 days respectively?
b. What is the standard deviation of the same task, assuming that 99.7% of the outcomes fall between a and b?
c. What is the standard deviation of the same task, assuming that 95% of the outcomes fall between a and b?
9. There are three (and only three) paths through a network (project), each with a probability of completion in less than 24 months as indicated:
- S- a-b-F P1(<24) = .90
- S- d-e-F P2(<24) = .85
- S- g-h-F P3(<24) = .90
a. If the tasks are independent, what is the probability of the project being completed within 24 months? Note: S is the start node, F is the finish node
b. What is the probability the project being completed in 24 months or longer?
10. You are a project manager who is reviewing the estimates for the cost of materials. You therefore begin tracking the estimated cost estimates of two procurement specialists and comparing their estimates with the actual costs of the materials once ordered. You obtain the information reflected in the attached tracking table.
a. Does the data indicate that either of the two procurement specialists is biased? Which one? In which direction?
b. Regardless of bias, does one procurement specialist appear to be more accurate in his or her estimates than the other? Which one?
Be sure to explain your answers. Hint, review the material in Section 4.3 of Mantel. Note, however, that there is an error in Merideth 5th Ed. The formula in Figure 4-3 for cell A20 should read "Cell E7" rather than "Cell D7".
11. Referring to the project in question 7:
a. Using the information contained in the attached file (Midterm Question 11 - Fall 2016), what is the new duration and cost for the project? You do not have to use MSP to answer this question. Note, since the tasks are laddered, there is only one path through the network. Therefore, TEproject = ?TE activities and the VARproject = ?VARactivities.
b. Using Table 5-7 in Mantel, what is the probability that you can finish the project in 130 days? Assume 99.7% of your durations fall between the optimistic and pessimistic estimates.
12. Referring to your team project, name two risks you might anticipate and how you could use the material we've covered over the last six weeks to mitigate (reduce the probability it might occur or the impact if it does occur) them. Remember that the mid-term is an individual exercise and you should not discuss this with any of your teammates.
Attachment:- Assignment.rar