If cost and rate of return were the only determining factors in the selection of a project, which one would you agree is the best selection?
Scoring model: project 1: Score = 22
project 2: Score = 28
NPV analysis: project 1: $60,995
project 2: $25,695
Based on the following:
1.Do you think that waiting longer for a better rate of return is a good idea? Explain your answer.
2.What would be your reasons for selecting the other project?
Assistance needed.
Project Management
To determine the best selection between project 1 and project 2 based on cost and rate of return, we should consider the scoring model and NPV analysis provided.
1. Scoring model:
- The scoring model assigns a score of 22 to project 1 and a score of 28 to project 2. Since project 2 has a higher score, it suggests that project 2 may be a better selection.
2. NPV analysis:
- The net present value (NPV) analysis indicates that project 1 has a NPV of $60,995, while project 2 has a NPV of $25,695. The NPV represents the present value of expected cash flows from the project, taking into account the cost of capital. A higher NPV suggests a more profitable investment.
Now, let's address the questions:
1. Do you think that waiting longer for a better rate of return is a good idea? Explain your answer.
- Based solely on cost and rate of return, waiting for a better rate of return can be a good idea. Higher returns typically indicate better profitability, so waiting for a better rate can lead to a more beneficial investment. However, it is important to consider other factors such as the time value of money, risks, and project deadlines, which may affect the overall decision.
2. What would be your reasons for selecting the other project?
- If project 1 is selected over project 2, the reasons could be:
- The higher NPV of project 1 indicates potentially higher profitability over the project's lifetime.
- Project 1 may have a lower cost, making it a more cost-effective option.
- Project 1 may align better with the strategic objectives or priorities of the company.
In summary, based on the given information, project 2 may be the preferred selection due to its higher score in the scoring model. However, project 1's higher NPV and potential cost advantages may also be considered when making the final decision.