Finance 1

FINANCE AND PROJECT MANAGEMENT ASSIGNMENT

Student’s Name

Course

Professor’s Name

University

City

Date

Table of Contents
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PART A 4

Question 1 4

Question 2 8

PART B 12

Question 3 12

1.0 Introduction 12

2.0 Project Background 12

2.1 Project Life Cycle 13

3.0 Project Tasks 15

3.1 Conception stage 15

3.1.1 Feasibility of the study 15

3.1.2 Project Scope Statement 15

3.2 Planning Phase 15

3.2.1 Development of work breakdown structure 16

3.2.2 The team 17

3.2.3 Time planning and Management 18

3.2.4 Risk Management 20

3.3 Project Implementation 21

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3.3.1 Communication 21

3.3.2 Quality management 21

3.3.3 Cost management 21

3.4 Termination 22

3.4.1 Project hand over 22

4.0 Conclusion 22

5.0 References 23
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Finance and Project Management Assignment

PART A
Question 1

a).

i). Under the payback period method, it can be seen from the calculations below that Machine
A has a lifetime of five years, an initial cost of 120, while the net cash flows are 40 in all years
and 20 in year 4. Considering this, the payback period is calculated as 3 years. On the other
hand, Machina B has a lifetime of five years and an initial cost of 120. While the net cash flows
are 20, 30, 50, 70, and 50 accordingly. Considering this, the payback period is calculated as 3.3
years. Under the criteria of the Payback period, Miller Ltd must purchase Machine A as it is
recovering the cost of investment in a much speedier manner in comparative terms.

Payback Method - Machine A (000)

Years 0 1 2 3 4 5
Initial Cost (Year 0) -120          
Residual Value of Machines (Year 5)           20
- - - -
Machine Depreciation   20 20 20 20 -20
Net annual cash inflows   40 40 40 20 40
Add back: Depreciation   20 20 20 20 20
Net cash flow -120 40 40 40 20 60
- -
Payback   80 40 0 20 80
Payback Period (Years) 3          

Payback Method - Machine B (000)

Years 0 1 2 3 4 5
-
Initial Cost (Year 0) 120          
Residual Value of Machines (Year 5)           30
- - -
Machine Depreciation   -18 18 18 18 -18
Net annual cash inflows   20 30 50 70 50
Add back: Depreciation   18 18 18 18 18
-
Net cash flow 120 20 30 50 70 80
Payback   - - - 50 13
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100 70 20 0
Payback Period (Years) 3.3          

ii). Under the Average Rate of Return method, it can be seen from the calculations below that
Machine A has a lifetime of five years, an initial cost of 120, while the net cash flows are 40 in
all years and 20 in the fourth year. Considering this, the ARR is calculated as 22.86%. On the
other hand, Machina B has a lifetime of five years and an initial cost of 120. While the net cash
flows are 20, 30, 50, 70, and 50 accordingly. Considering this, the ARR is calculated as 34.67%.
Under the criteria of ARR, Miller Ltd can purchase both Machine A and Machine B as both the
machines are giving higher returns than the required rate of return of the firm (10%). However,
if out of both one must be chosen then Machine B must be given preference as its offering,
such greater return as compared to Machine A.

Accounting Rate of Return- Machine A (000)

Years 0 1 2 3 4 5
Initial Cost (Year 0) -120          
Net annual cash inflows   40 40 40 20 40
Less: Machine Depreciation   -20 -20 -20 -20 -20
Net Profit -120 20 20 20 0 20
Average Profit 16          
Average Investment 70          
ARR% 22.86%          

Accounting Rate of Return- Machine B (000)

Years 0 1 2 3 4 5
Initial Cost (Year 0) -120          
Net annual cash inflows   20 30 50 70 50
-
Less: Machine Depreciation   18 -18 -18 -18 -18
Net Profit -120 2 12 32 52 32
Average Profit 26          
Average Investment 75          
ARR% 34.67%          

iii). Under the Net Present Value method, it can be seen from the calculations below that
Machine A has a lifetime of five years, an initial cost of 120, while the net cash flows are 40 in
all years and 20 in the fourth year. Using the discount rate of 10%, the value of NPV is
calculated as £30.39. On the other hand, Machina B has a lifetime of five years and an initial
cost of 120. While the net cash flows are 20, 30, 50, 70, and 50 accordingly. Using the discount
rate of 10%, the value of NPV is calculated as £58.03. Under the criteria of NPV, Miller Ltd can
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purchase both Machine A and Machine B as both the machines are generating positive NPV.
However, if out of both one must be chosen then Machine B must be given preference as its
offering, such greater NPV as compared to Machine A.

NPV - Machine A (000)

Years Years Years Years Years Years Years
Initial Cost (Year 0) -120 0 0 0 0 0
Residual Value of Machines (Year 5)   0 0 0 0 20
Machine Depreciation   -20 -20 -20 -20 -20
Net annual cash inflows   40 40 40 20 40
Add back: Depreciation   20 20 20 20 20
Net cash flow -120 40 40 40 20 60
Discount Rate 10%          
NPV £ 30.39          

NPV - Machine B (000)

Years Years Years Years Years Years Years
Initial Cost (Year 0) -120          
Residual Value of Machines (Year 5)           30
Machine Depreciation   -18 -18 -18 -18 -18
Net annual cash inflows   20 30 50 70 50
Add back: Depreciation   18 18 18 18 18
Net cash flow -120 20 30 50 70 80
Discount Rate 10%          
£
NPV 58.03          

b). Using the Payback period method Machine A is recommended. While the payback period is
easier in terms of calculation however it does not incorporate the concept of the time value of
money. Using ARR method Machine B is recommended. The advantage of ARR is that it’s easier
to calculate, it recognizes the net earning concept, offers a clear picture of a project’s
profitability, and the firm's current performance. The major drawback of this method is that it
ignores the concept of time value. Using the NPV method Machine B is recommended. The
advantage of NPV is that it incorporates a discounting concept and gives a feasible and
rationale recommendation. While the drawbacks are that there are many more costs involved
in a project other than cash flows. When capital is limited and it's expected to rise then NPV
cannot be a suitable method as it does not incorporate other costs such as opportunity cost etc.
in the decision making. Based on critical evaluation, it is recommended that Millers Ltd much
purchase Machine B as it has many favorable prospects.
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Question 2

The underlying report is presented to the Board of Directors Bell Electronics and it
presents a critical evaluation of the firm’s performance in the last two years focusing on
efficiency, liquidity, and profitability domains. The detailed ratio evaluation is presented below:

Return on capital employed

The ROCE can be seen as a financial metric that can assess the capital efficiency and
profitability of Bell Electronics. This ratio is useful in understanding how well the management
of Bell Electronics is generating profits by using its underlying capital investment. As per
calculations, it can be seen that in the year 2018 the ROCE at Bell Electronics was 21.88%, which
later reduced to 18.24% in the year 2019. This means that over the years, the efficiency of
management is reducing and it is recommended that the management must enhance its
operating profit without increasing the capital or reduce the value of capital while maintaining
the operating profit to improve its ROCE ratio.

Operating profit margin

The ratio of profit margin is presented in percentage and it assesses how much profit
the firm is earning after accounting for all its cost outlays. As per calculations, it can be seen
that in the year 2018 the OPM at Bell Electronics was 10%, which later improved to 11.92% in
the year 2019. This means that over the years, the efficiency of the management in generating
greater profits is improving. It is therefore recommended that the management must enhance
and sustain its policies that are focusing on controlling costs and enhancing profitability.

Gross profit margin

These metrics analyze the financial health of Bell Electronics by calculating the money
that remains after accounting for the underlying costs (COGS). As per calculations, in the year
2018, the Gross Margin at Bell Electronics was 32.86%, which later improved to 40% in the year
2019. This means that over the years, the efficiency of the management in generating greater
profits is improving. It is therefore recommended that the management must enhance and
sustain its policies that are focusing on controlling costs and enhancing profitability.

Current ratio

This ratio assesses the capability of Bell Electronics in paying back its obligations on a
short-term basis. As per calculations, it can be seen that in the year 2018 CR at Bell Electronics
was 1.84, which later reduced to 1.36 in the year 2019. This means that over the years, the
short-term liquidity prospects of Bell Electronics are reducing. The ratio is still above 1, so it’s
acceptable but the management must take proactive actions in controlling and increasing it by
reducing its short-term liability or increasing the short-term asset base.
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Acid test ratio

The quick ratio assesses the ability of Bell Electronics in paying back its obligations on a
short-term basis using its most liquid assets which does not include inventory. As per
calculations, it can be seen that in the year 2018 the QR at Bell Electronics was 1.21, which later
reduced to 0.54 in the year 2019. This means that over the years, the short-term liquidity
prospects of Bell Electronics are worsening. The ratio is below 1 so it’s a major red flag for the
management. It is recommended that the management of Bell Electronics must quickly pay
back its liabilities and keep them under control. Another method is by increasing sales and
inventory turnover and reducing the collection period of the invoice.

The settlement period for trade receivables

This ratio depicts the number of days it takes for recovering credit sales. As per
calculations, it can be seen that in the year 2018, the settlement period at Bell Electronics was
10.95, which later increased to 20.36 in the year 2019. This donates that the company is not
collecting back cash in a timely manner and it is recommended to have better communication
with consumers with regards to their outstanding payments and the expected payment date.

The settlement period for trade payables

It shows how many days the management of Bell Electronics takes in paying back to its
suppliers. As per calculations, it can be seen that in the year 2018, the settlement period at Bell
Electronics was 46.60, which later increased to 87.74 in the year 2019. This donates that the
reputation of the company is paying back on time is at stake and management must make sure
that they pay back in a timely manner.

Inventories turnover period

It shows the taken for inventory to be sold out. As per calculations, it can be seen that in
the year 2018, the settlement period at Bell Electronics was 38.83, which later increased to
93.59 in the year 2019. This is a major red flag for management as they can be stocking
obsolete inventory if they don't sell it fast enough. This also means that the marketing
department needs to gear up and design promotional campaigns to increase sales at Bell
Electronics.
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PART B
Question 3

1.0 Introduction
Under the process of project management, a firm strategizes, arranges, and controls an

underlying project with the aim of implementing it in an efficient manner (Kerzner 2018). To

elaborate, the project involves a chain of tasks, accepting inputs such as human efforts, time,

and resources for producing specific and desired outcomes. As per Meredith, Shafer, & Mantel

Jr. (2017) the notion of Project Management helps in broadening an underlying project and

involved defining a financial budget, responsibilities, resources/assets, goals, scope, and

development and implementation timeline. In addition, project management includes ensuring

the team works efficiently by minimizing risks and maintaining high-quality.

2.0 Project Background

The firm operates in the building industry and deals particularly with the manufacturing

of concrete (pre-stressed). The underlying report is going to present a comprehensive

implementation plan of transferring eight assembly machines and ancillary equipment to

Poland. To elaborate, the firm has been operational for quite some time, and it operates in a
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strong and profitable market. Historically, the firm has witnessed huge growth spans and has

been evolving ever since its inception. In terms of sales, the firm has experiences high rank and

massive improvements. Nevertheless, in recent times, there has been a decline in commercial

work. In order to stay competitive and sustain a market position, Concrete Masonry

Corporation is forced for big working opportunities that are outside its geographical locality.

In the global market, the firm faced immense competition from the other market player

of the construction industry dealing with the similar product offering. In order to be successful,

the management undertook a project of transferring assembly machines and ancillary

equipment to Poland. Kevin Lewis is the project manager; under whose supervision the firm has

aimed to complete this project in six months’ time under £900,000 budget. Considering this,

the underlying objective behind the report is highlighting factors that Lewis will consider while

implementing the project.

2.1 Project Life Cycle

It is stated by Burke, (2013) that all projects are completed using a cycle process and the

four stages narrate the system of project implementation starting from initiation to conclusion

stage. As per Pheng (2018), the 1 st stage of a project life cycle is the commencement phase

which involves defining all the factors causing initiation of a task. At this stage, the project is

started on a high note, not focusing on deliverables, scope, and target goals of the succeeding

stages. In addition, it involves conducting a feasibility examination for determining whether the

underlying project has the ability to meet the targets or not. The project manager (Lewis) will

collect adequate data, resources, and clearly craft the underlying objective behind the project.
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The project will involve visiting Europe with the project team for a survey of the site and also

making up an efficient project team for generating positive synergies.

The second stage of a project involves plan making (Lock, 2017). As per Kerzner (2017),

the planning stage incorporates determining project scope, setting up a range of financial

budget, designing the time table, and developing a risk management and control plan. The

project planning will focus on determining project scope, setting up a range of financial

budgets, designing the time table, and developing a risk management plan. The next stage is

the stage of implementation. The activities covered under the implementation stage includes

coordinating with team members, crafting a plan of communication, project task allocation, and

managing the overall costs and resources. It will be the responsibility of Lewis to develop a

profound implementation plan that can be highly crucial for the successful completion of the

underlying project. Here it will be determined whether the project is delivering what it

promised in the project objectives initially (Walker, 2015).

The last stage is closing the project. In this stage, the project manager works along with

other team members to assess the results of the project and determine whether the project

was successful or not. Other activities that are a part of this stage are the process of handing

over, communication of the project closure, and signing a client termination contract (Verzuh

2015). Lewis, the Project Manager must be careful about the deliverables of the project and

devise a monitoring plan for further improvements in the project. The four stages can be seen

below.
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Figure 1 Project management Cycle Sources:((Burke, 2013)

3.0 Project Tasks

3.1 Conception stage
3.1.1 Feasibility of the study
The project feasibility study is that given the time and resources available for the

proposed project, whether the project is Doable and Manageable. In other words, a study is

made to decide if the proposed project to be conducted can in fact be carried out with the time

and resources, hence a feasibility study is done. It's the responsibility of Kevin Lewis to conduct

a feasibility study aimed at comparing the alternatives for addressing the objectives of a project

(Burke, 2013). It will be further decided whether the project will be profitable in the future or

not. It is further suggested by Meredith and Mantel (2011) that feasibility involves a

cost/benefit analysis. It will be moreover decided if the project is viable in economic terms.

Lewis will also decide whether a time frame of 6 months is adequate for completing the project.
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3.1.2 Project Scope Statement

The project has been initiated for transferring assembly machines and ancillary

equipment to Poland. The project manager is Kevin Lewis, under whose supervision the firm

has aimed to complete this project in six months' time under £900,000 budget. Considering

this, the underlying objective behind this project is implementing the project within its project

constraints. The activities falling in scope are all the activities linked with the European project.

The out of scope activities are the ones focusing on any other locality. The estimated cost of

this project is £900,000.

3.2 Planning Phase

For a successful project, the underlying tasks must be broken down into manageable

activities by the project manager (Papke-Shields and Boyer-Wright, 2017). First Kewin Lewis will

present the approval and completion of Statement of Work and then the project will enter into

the planning phase. Thereby, Lewis will devise a project plan for implementation will be

including project schedule and activities assigned to team members on the basis of cost,

resources, and timeframe (Bruce, 2015). The factors that must be considered by Lewis in the

project planning stage are the availability of equipment, assembly of machinery, vehicles and

graphic machines, insurance, site browsing, local transport for members of the team, and

project quality control.

3.2.1 Development of work breakdown structure

To manage a project, you have to divide it into manageable defined smaller chunks of

work or work packages (Bullock, 2017). The WBS of Concrete Industry Corporation Project is

given below.
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Concrete
Masonry
Project

Project Project Project

Initiation Planning Execution Project Closure

Quality
Site Visits Planning Risk and Cost Handover
Scope of Management Process
Project
Time
Management
Quality Control
Feasibility
Report
Risk
Management Communication
Management
Transportation
Project of Machine
Scheduling Project
Deliverables Site
Development

Installation of
Machine

The WBS will be created by Lewis including project stages and sub-stages. The WBS of

Concrete Industry Corporation Project is given below.

Figure 2: WBS Source (Author)

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3.2.2 The team

It is said by Boyce (2016) that for a project to be successful there is a need for the right

team. The structure of the team is basically the team composition (Pinto, 2013). For the

underlying project, the team includes Lewis (Project Manager) and five team members. The

team structure for Concrete Masonry Corporation project is shown below.

Project Manager

Administration

Project Quality Technical Management Procurement Manager Project Controls

3.2.3 Time planning and Management

As per Rowe (2020) time management is extremely important for a project to be

successful. It’s the responsibility of Lewis to divide tasks in an effective manner so that the

project is completed in six months’ time. According to Carstens, Richardson, & Smith (2016)

Gantt chart is a useful tool for time management. The Gantt chart for Concrete Corporation is

shown below.

GANTT
CHART Months
Activities OCT NOV DEC JAN FEB MAR
Scope            
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Definition

Location Visit and Feasibility Study

           

Forecast and Site Layout

           
Transportation and Assembly of
Equipment            
Installation of Equipment
           
Testing of Equipment
           

Project Handover
           
Figure 1 Gantt Chart Source (Author)

The Precedence Table is shown below and it shows the duration of seven different

activities the project is divided into (Dye, 2011). It also shows the duration of each activity and

the predecessor activities which depict whether an activity can be completed only after a

prerequisite activity is done and whether two activities can be completed simultaneously. The

network diagram presents a graphical depiction of the activities using the activity code.

Activity
Code Activity Name Duration (Months) Predecessor
A Scope Definition 1 -
B Location Visit and Feasibility Study 1 A
C Forecast and Site Layout 1 B
Transportation and Assembly of
D Equipment 1 A, B
E Installation of Equipment 1 D
F Testing of Equipment 1 E
G Project Handover 1 F
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Figure 4 Network Diagram Source (Author)

3.2.4 Risk Management

As per Kansal and Sharma (2012), the process of risk management helps the project

manager in identifying, assessing, and responding to critical scenarios that can incur during the

project life cycle. The risk management steps taken by Lewis are shown in the diagram below.

Figure 5 Risk management process Sources (Scawalbe,2015)

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Considering this diagram, first of all, Lewis must acknowledge the presence of potential

risks for the underlying project. Webb (2017) has declared that if a firm does not manage its

risks effectively it can impact on time and cost outlays of a project. Potential risk factors are an

adaptation to new environments, malfunctions during transportation, on-site accidents, and

delays in transport. After this, Lewis must devise a suitable risk management strategy, including

cost control, effective risk awareness, risk sharing, and risk reduction (Talluri and Kull, 2013).

For reducing risks Lewis can go for using safer means of transporting machines, and flexible

timetables. Risk-sharing can be done by ensuring machines so that the risk of damage is shared

by the insurance company. Effective cost management and risk awareness include the

incorporation of risk cost in the project costing (Schwalbe, 2015).

3.3 Project Implementation

In an implementation, Lewis must oversee the following tasks as discussed below.

3.3.1 Communication
As per Smith (2016), communication is a key component for a project’s success as

misunderstandings and lack of communication can lead to project delays. It’s the responsibility

of Lewis to ensure that there is two-way communication throughout the project and members

learn and share valuable insights and feedback. Effective communication can be done via

polling, writing to-do lists, creating discussion boards, arranging meetings, social activities, and

emails (LaPrad, 2018).

3.3.2 Quality management

In order to assure that all project tasks and completed as per the expectations and standards

set by management, a quality control plan is a must. This can be done by continuous

improvement plans and regular audits.

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3.3.3 Cost management

In order to assure that project costs stay within the predefined limit, it's the responsibility of

Lewis to devise a detailed project budget that allocates costs to each project task or activity.

Cost reconciliation must be done on a periodic basis to see where and why the costs are

deviating (Kayshap, 2018). In addition, Lewis can keep a buffer cost variable in the budget to

cover the unforeseen costs throughout the project's life cycle.

3.4 Termination
3.4.1 Project hand over
At this stage, Lewis should present project deliverables and assess the success of the

underlying project. This can be done by rating against the checklist devised initially (Harrison,

and Lock, 2017). All original project reports must be submitted to the stakeholders.

4.0 Conclusion
To conclude, the project cycle starts with project initiation and ends at project

termination. The attainment of each stage belonging to the life cycle of a project decides

whether the underlying stakeholders are going to disregard the stage or not. Lewis has

presented a detailed project management report to assure that the project meets its objectives

and satisfies the needs of relevant stakeholders.

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5.0 References

Boyce, W. (2016). MGMT 302-02 Quality and Productivity in Operations.

Bruce R (2015) How to Build an Effective Project Management Communication Plan. Available
at: https://www.teamgantt.com/blog/why-communication-is-important-in-project-
management. (Accessed on 19th Dec 2019)
Bullock, R.L. ( 2017). ‘Project Management and Control at the Feasibility and Evaluation Level’,
Mineral Property Evaluation: Handbook for Feasibility Studies and Due Diligence, p.335.
Burke, R (2013) Project Management, Planning, and Control Techniques, 5th edition,
Chichester: John Wiley and Sons
Carstens, D.S., Richardson, G., and Smith, R.B.,( 2016). Project management tools and
techniques: A practical guide. CRC Press.
Dye, L. D. (2011) The significant role of the project manager in establishing and maintaining
team morale. Newtown Square, PA: Project Management Institute.
Harrison, F., and Lock, D. (2017). Advanced project management: a structured approach. New
York: Routledge.
Kansal, K. & Sharma M (2013) ‘Risk Assessment Methods and Application in the Construction
Projects,’ Journal of Modern Engineering Research 2(3), 1081-1085
Kayshap S (2018) Why is Project Management Important: Benefits, Importance, and Tools.
Available at: https://www.proofhub.com/articles/why-is-project-management-
important. (Accessed on 17th Dec 2019)
Kerzner, H. (2017). Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Kerzner, H. (2018). Project management best practices: Achieving global excellence. New Jersey:
John Wiley & Sons.
LaPrad L. (2018) Creating a Project Management Communication Plan. Available at:
https://www.teamgantt.com/blog/project-management-communication-plan.
(Accessed on 19th Dec 2019)
Lock, D., (2017). The essentials of project management. New Yor: Routledge.
Machac, J., & Steiner, F. (2014) ‘Risk management in early product lifecycle phases’,
International Review of Management and Business Research, 3(2), pp. 1151-1162.
Meredith, J. R., & Mantel Jr, S. J. (2011) Project management: a managerial approach. New
York: John Wiley & Sons.
Meredith, J. R., Shafer, S. M., & Mantel Jr, S. J. (2017). Project Management: A Strategic
Managerial Approach. John Wiley & Sons.
Papke-Shields, K.E., and Boyer-Wright, K.M., (2017).' Strategic planning characteristics applied
to project management', International Journal of Project Management, 35(2), pp.169-
179. https://doi.org/10.1016/j.ijproman.2016.10.015
Pheng, L.S. (2018). Project Life Cycles, Stakeholders, and Organizations. In Project Management
for the Built Environment (pp. 15-26). Singapore: Springer.
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Pinto, J. K. (2013) Project Management, Achieving Competitive Advantage Global Edition:

Pearson College. Canada: Pearson Higher Ed.
Rowe, S. F. (2020). Project management for small projects. Berrett-Koehler Publishers.
Schwalbe, K. (2015) Information technology project management. London: Cengage Learning.
Smith, P.(2016).’ Project cost management with 5D BIM’. Procedia-Social and Behavioral
Sciences, 226, pp.193-200. https://doi.org/10.1016/j.sbspro.2016.06.179
Talluri S. & Kull T. (2013) ‘Assessing the Efficiency of Risk Mitigation Strategies in Supply Chains,’
Journal of business logistics.34(4), pp.253-269
Verzuh, E. (2015) The fast forward MBA in project management. New York: John Wiley &
Walker, A. (2015) Project management in construction. New York: John Wiley & Sons.
Webb, A.,(2017). The project manager's guide to handling risk. New York: Routledge.