PROBLEM 2. Given a project salary cost of $400,000 per year and forecasted wage

Question

PROBLEM 2. Given a project salary cost of $400,000 per year and forecasted wage increases of 5 percent per year, calculate the non discounted total salary cost over a three-year project lifecycle. PROBLEM 3 .You have been asked to estimate the costs for a project to build an industrial power plant Based on historical data, the steam turbine accounts for 30 percent of the total costs for the plant. If the steam turbine costs $300,000, the expected top-down estimated cost for this project would be ? PROBLEM 4. A three-year financial project has net cash flows of $ 15,000, $20,000, and $25,000 respectively. If it will take $50,000 to implement the project at a given interest rate of 12 %, determine the NPV of the project. Explain why it is a good one or not.

Explanation / Answer

Problem 2. Project salary cost Increase - 5% Total salary cost Year 1            4,00,000                  -             4,00,000 Year 2            4,00,000        20,000           4,20,000 Year 3            4,20,000        21,000           4,41,000 Year 4            4,41,000        22,050           4,63,050 Problem 3 Steam turbine Other costs Total costs %age of costs 30% 70% 100% Costs -$ 300000 700000         10,00,000 Problem 4 Implementation cost 50000 Interest rate 12% Year 1 15000 Year 2 20000 Year 3 25000 NPV USD 47,131.24 The NPV is less than the project investment, which suggests the returns are not favourable.

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