1. Problem Definition and Opportunity Statement:
I have planned to invest in two mutually exclusive business plans and have decided to evaluate them using Economic and Financial Modelling tools to determine their profitability and Return On Investment ROI. As a continuation of this business plans analysis from W8_Reginald Nwachukwu_Analysis of Business Plans Using B.E Analysis ROI, ROS
2. Development of Feasible Alternatives:
The business alternatives are developed by calculating the projected cash inflows for the two mutually exclusive business projects in order to evaluate and analyse them for comparison.
3. Development of Outcome for Each Alternative:
The outcome for each business alternative will be based on the business plan that have a favourable ROI and higher NPV & IRR for it to be considered profitable.4. Selection of Acceptable Criteria:
The selection of acceptable criteria for further consideration and recommendation will be based on the table below: Its show how these economic analysis tools are been used be professional globally
5. Analysis and Comparison of Each Alternative:
The computation for NPV, IRR and Payback period for the 3D modeling Training Center and Cybercafe Business Center is as shown below :
6. Selection of Preferred Alternative:
Based on the globally percentage of professionals that uses these tools for capital budgeting and financial analysis, the 3D modelling training center will be a preferred option since it has a higher NPV (N3,309,327.98), low Payback period (1.31 years), and higher complex ROI (436%). Hence, the 3D Modeling Training Center is the preferred business alternative.
7. Performance Reporting and Evaluation:
The performance, evaluation and reporting of the preferred business plan (3D Modeling Training Center) will be monitored by checking the ROI, B.E. sales and IRR as compared to the cost of capital of 10% used to analysed the business plan.References:
1. AACE Skills and Knowlege of Cost Engineering 2004 P 2.1- 2.5 (5th Edition Revised Edition)
Morgantown West Virginia
2. Jeffery Mark Return on Investment Analysis for E-Business Projects Retrieved from
http://www.kellogg.northwestern.edu/faculty/jeffery/htm/publication/ROIforITProjects.pdf
3. Booth L, Cleary S.W. Introduction to Cooperate Finance Retrieved from
http://www.wiley.com/college/booth/0470837802/ppt/ch13.ppt
AWESOME, Reginald!!! Loved your case study and your treatment of it.
ReplyDeleteMy only question is how did you end up selecting 10% as your WACC.
What I would highly recommend is you spend more time in Engineering Economy and less in Skills and Knowledge. S & K is getting VERY dated and while the formulas haven't changed, there are some new perspectives on them.
I highly recommend that for your next blog posting, you turn to Engineering Economy, pages 310 and 526 to 532. Using what you learn from those pages, explain to us how you came up with that 10% WACC number you chose?
What SHOULD it have been given the risk of starting your own business?
Keep up the good work but you need to get into Engineering Economics more....
BR,
Dr. PDG, Jakarta