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    Project evaluation

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    This is a revised - short version:
    - Proposal A: The auto airbags production division submitted a proposal for a new airbag model would cost $ 2,355,600 to develop. The anticipated revenue stream for the next 10 years was $ 400,000 per year.
    - Proposal B: The aerospace division proposed the development of new radar surveillance equipment. The anticipated cost was $2,442,700. The anticipated revenue stream for this project is $ 450,000 per year for the next ten years.
    - Proposal C: Was a 2nd proposal from the auto airbag division. It called for special equipment to be used int eh disposal of environmental harmful waste material created in the manufacturing process. the equipment cost of $ 145,680 and was expected to provide cost savings of $ 15,000 per year for 15 years.
    -Proposal D- Was a 2nd proposal from the aerospace division, It called for the development of a new form of a microelectric control system that could be used for fighter jets that were still in the design stage at another aerospace company. If the other aerospace company was successful in the development of the fighter jets, they would be sold to undeveloped countries in various sectors of the world. The cost to produce the microelectric control system was $ 1,262,100 and the best guess estimate was the investment would return $ 300,000 a year for the next eight years.
    1. Compute the internal rate of return and the net present value for each of the four proposals.
    2. Based strictly on the calculation, which proposal should be accepted or rejected. Use the appropriate divisional discount rate. The net present value provides the answer directly while the internal rate of return must be compared to the discount rate (which is the same as the required rate of return).
    3. What subjective elements might override or influence any of the answers provided to question 2?
    4.Assume the head of the aerospace division asked for a second review on the new radar surveillance equipment (Proposal B). He maintains that the numbers presented in Proposal B are correct, but he wants you the analyst, to know that $ 300,000 has already been spent on the initial research on this project. (Its not included in the $ 2,441,700). He suggests that this might influence your decision. What should be your response?

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    Solution Summary

    The solution explains how to evaluate the different projects and make a decision on which projects are acceptable.