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TOPIC: QuestionQuestion - Need to know how it is calculated

Question - Need to know how it is calculated 2 years 7 months 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 2 years 7 months ago #5693

 Sathish Kumar Offline Fresh Boarder Posts: 6 Karma: 2 Thank you received: 0 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% 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 2 years 7 months ago #5694

 Cornelius Fichtner Away Administrator PrepCast Instructor Posts: 1119 Karma: 35 Thank you received: 185 Rachel, Please tell us where this question comes from. We want to make sure that the original question creator receives appropriate accreditation. 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. Until Next Time, Cornelius Fichtner, PMP, CSM President, OSP International LLC

Question - Need to know how it is calculated 2 years 7 months 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 2 years 7 months ago #5704

 Steve Sandoval Offline Senior Boarder Posts: 49 Thank you received: 8 Sathish's approach looks correct to me -- I would go with D also. 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. Steve Sandoval, PMP Community Moderator

Question - Need to know how it is calculated 9 months 1 week 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 8 months 1 week 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 6 months 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] 4 months 10 hours 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.
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