Net Present Value and Tutorial Letter

[INF3708 TUTORIAL LETTER 201]

October 3, 2013

INF3708
2013 - Semester 2
Assignment 01 – Solutions
(Note: Page numbers refer to in Q1 – Q15 refer to the prescribed textbook: Bob Hughes and Mike Cotterell,
2009. Software project Management – Fifth edition. McGraw-Hill (London). ISBN: 9780077122799)
Q1.
Q2.
Q3.
Q4.
Q5.
Q6.
Q7.
Q8.
Q9.
Q10.
Q11.
Q12.
Q13.
Q14.
Q15.

4
3
4
2
1
1
4
3
4
4
5
5
5
1
5

(p5)
(p2)
(p83)
(p82)
(p85)
(p82)
(p84)
(p11)
(p55)
(p60)
(p8)

Question 16
Answer = 3
Net profit is the difference between the total costs and the total income over the life of the project.
((-155 000) + (-5 000) + 40 000 + 50 000 + 50 000 + 50 000 + 30 000) = R60 000
Question 17
Answer = 4
Net profit is the difference between the total costs and the total income over the life of the project.
((-140 000) + 15 000 + 5 000 + 20 000 + 30 000 + 60 000 + 70 000) = R60 000
Additional information about net profit: advantage as method for comparing projects – simple to calculate disadvantage as method for comparing projects – takes no account of timing of cash flows

@UNISA 2013 | Revise and ensure that you have the full understanding of question 16 to question 24: Very IMPORTANT

1

[INF3708 TUTORIAL LETTER 201]

October 3, 2013

Question 18
Answer = 2 (i.e., 4 + (20000/50000) = 4.4 yrs) OR (5 - (30000/50000) = 4.4 yrs)
Payback is the time taken to break even or pay back the initial investment
Year
0
1
2
3
4
5

Project 1
-R155 000
-R5 000
R40 000
R50 000
R50 000
R50 000

Calculations for pay back period
- R155 000
(- R155 000) + (- 5 000) = - 160 000
(-160 000) + 40 000
= - 120 000
(-120 000) + 50 000
= - 70 000
(- 70 000) + 50 000
= - 20 000
(- 20 000) + 50 000
= 30 000

Question 19
Answer = 4 (i.e., 5 + (10000/70000) = 5.14 yrs) OR (6 - (60000/70000) = 5.14 yrs)
Payback is the time taken to break even or pay back the initial investment
Year
0
1
2
3
4
5
6

Project