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# TOPIC: Question - Need to know how it is calculated

## Question - Need to know how it is calculated 9 years 1 month ago #5692

 Rachel Topic Author Visitor Can you please let me know which is the right answer and how the calulations are done? A company has to make a choice between two projects, because the available resources in money and kind are not sufficient to run both at the same time. Each project would take 9 months and would cost \$250,000. The first project is a process optimization which would result in a cost reduction of \$120,000 per year. This benefit would be achieved immediately after the end of the project. The second project would be the development of a new product which could produce the following net profits after the end of the project: 1. year: \$ 15,000 2. year: \$ 125,000 3. year: \$ 220,000 Assumed is a discount rate of 5% per year. Looking at the present values of the benefits of these projects in the first 3 years, what is true? A.) Both projects are equally attractive. B.) The first project is more attractive by app. 7%. C.) The second project is more attractive by app. 5%. D.) The first project is more attractive by app. 3%. Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable. Last edit: by Cornelius Fichtner.

## Question - Need to know how it is calculated 9 years 1 month ago #5693

 Sathish Kumar Offline Fresh Boarder Posts: 6 Karma: 2 Thank you received: 1 Ans : D PV=FV/(1+R)^N R=Rate of interest, N = number of years Project 1 Yr1 \$ 120,000/(1+0.05)^1 = \$ 114,286 Yr2 \$ 120,000/(1+0.05)^2 = \$ 108,844 Yr2 \$ 120,000/(1+0.05)^3 = \$ 103,661 Total \$ 326,791 Project 2 Yr1 \$ 15,000/(1+0.05)^1 = \$ 14,286 Yr2 \$ 125,000/(1+0.05)^2 = \$ 113,379 Yr2 \$ 220,000/(1+0.05)^3 = \$ 190,044 Total \$ 317,709 compare PV of both projects = (326791-317709)/326791*100 = 3% The following user(s) said Thank You: Mohamed Riadh Ben Othman Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 9 years 1 month ago #5694

 Cornelius Fichtner Offline Administrator President, OSP International LLC Posts: 1981 Karma: 120 Thank you received: 607 Rachel, Please tell us where this question comes from. We want to make sure that the original question creator receives appropriate accreditation. Thank you! Until Next Time, Cornelius Fichtner, PMP, CSM President, OSP International LLC Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 9 years 1 month ago #5701

 Rachel Topic Author Visitor It came from oliver Lehman practice exam. Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 9 years 1 month ago #5704

 Steve Sandoval Offline Senior Boarder Posts: 49 Thank you received: 11 Sathish's approach looks correct to me -- I would go with D also. Steve Sandoval, PMP Community Moderator Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 7 years 3 months ago #10352

 Veda Kaul Offline Fresh Boarder Posts: 1 Thank you received: 0 Hi, can someone please explain two things: 1) Is a cost reduction and the net profits the same thing? (\$120,000 and \$15,000)? Also, can you please explain the last step: compare PV of both projects = (326791-317709)/326791*100 = 3% What is the exact formula for this? I presume this is NPV? But, it doesn't match the NPV formula I found. If you could please provide greater clarification between your steps would be very helpful. Also, is it safe to assume that the real PMP won't be this difficult? Is Oliver Lehmann's exams much more difficult than the real PMP? Thanks! Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 7 years 2 months ago #10554

 Ileana Olivar Topic Author Visitor The formula used is the formula to calculate the percentage value Percent Change = (New Value - Old Value) × 100% Old Value| Also hoping the real questions are not this tricky. Can't afford to spend 5 mins in one question.. Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 7 years 4 weeks ago #11022

 Bhushan Topic Author Visitor Why don't you subtract cost for 1st year \$250,000. 250,000/1.05= 238,095 Therefor NPV = 326,791-238,095 = 88,696 Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## [email protected] 6 years 10 months ago #11999

 Anonymous Topic Author Visitor Thank you for the answer. Reviewing my answers to Oliver Lehmann's test now and could not figure this one out. His site and test has been pointed out as a great source: http:/www.oliverlehmann.com/pmp-self-test/75-free-questions.htm. Great site here. Thank you. Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Why shall we not consider 4th year 4 years 4 months ago #20345

 Shyamal Saha Topic Author Visitor 2nd project is more attractive if 3rd year profit continue till 4th year. Why are we considering 3 years life span ? Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Why shall we not consider 4th year 4 years 4 months ago #20348

 Harry Elston Offline Moderator Posts: 464 Karma: 27 Thank you received: 145 Shyamal: The questions asks for only 3 years. See the final sentence of the question. +++++ Harry J. Elston, Ph.D., CIH, PMP Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Question - Need to know how it is calculated 3 years 7 months ago #25333

 Amit Kumar Offline Fresh Boarder Posts: 6 Thank you received: 0 As a thumb rule, projects with higher cash inflows during the initial years will be more attractive....in case someone wants to save time in calculations. Not sure if this holds good for all scenarios. Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.

## Why not consider the 4th year 1 year 7 months ago #30067

 Victor Bade-Victory Topic Author Visitor The question stopped at the 3rd year that's why Your e-mail address will never be displayed on the site. Check this box to be notified of replies to this topic. Note: BBcode and smileys are still usable.
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