Business Finance
Trine University PV and Risk Financial Tool Excel Sheet

Trine University

Question Description

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  • Use the information provided, for PV and Risk, in order to complete the tables of data for each scenario.
  • Describe what the difference between each type of financial tool is (NPV, PI, ECV….), how it’s calculated, and the strengths and weaknesses of each tool.
  • Each scenario has a specific outcome. Discuss the similarities and differences in those outcomes. How do the outcomes differ from your predictions? How are the outcomes similar to what you predicted?
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    1. Discuss what each type of financial tool is (NPV, PI, ECV…), and what are the strengths and weaknesses of each tool. NPV: PI: ECV: 2. Calculate and fill in the table balnks, place your decision of "GO" or "KILL" under each scenario. Scenario 1 Zulu Alpha Tango Beta Sierra Echo Romeo Oscar Lima Present Value Development Cost 30 2 4 5 42 10 27 8 69 3 2 0.5 3 4.5 7 4 1 10 Scenario 1 Commercialization Cost 2 1 0.75 2 8 5 2 0.5 5 Net Present Value 25 -1 2.75 0 29.5 -2 21 6.5 54 Ranking 3 8 6 7 2 9 4 5 1 Scenario 2 (25M Total Budget) Scenario 2 Zulu Alpha Tango Beta Sierra Net Present Value 25 -1 2.75 0 29.5 Development Cost 3 2 0.5 3 4.5 NPV Productivity Index 8.333 -0.500 5.500 0.000 6.556 Commercialization Cost 2 1 0.75 2 8 Sum of Costs 5 3 1.25 5 12.5 Echo Romeo Oscar Lima -2 21 6.5 54 7 4 1 10 -0.286 5.250 6.500 5.400 5 2 0.5 5 12 6 1.5 15 Sce Scenario 3 Present Value Zulu Alpha Tango Beta Sierra Echo Romeo Oscar Lima Development Cost 30 2 4 5 42 10 27 8 69 3 2 0.5 3 4.5 7 4 1 10 Commercialization Cost 2 1 0.75 2 8 5 2 0.5 5 Probability Probablity of of Technical Commercial Success Success 56% 34% 54% 58% 58% 45% 37% 43% 31% 41% 79% 56% 34% 64% 76% 71% 42% 65% Sce Scenario 4 Zulu Alpha Tango Beta Sierra Echo Romeo Oscar Lima Present Value Development Cost 30 2 4 5 42 10 27 8 69 3 2 0.5 3 4.5 7 4 1 10 Commercialization Cost 2 1 0.75 2 8 5 2 0.5 5 Probability Probablity of of Technical Commercial Success Success 46% 34% 44% 58% 48% 35% 37% 43% 31% 41% 69% 56% 34% 54% 66% 71% 32% 65% 3. Based on the decision made above, discuss the similarities and differences in thouse outcomes. and weaknesses of each tool. Decision GO KILL GO KILL GO KILL GO GO GO PROFIT Ranking Decision 1 9 4 7 2 GO KILL GO KILL KILL Solver Decision 1 0 1 0 0 63.75 88.25 8 6 3 5 KILL KILL GO GO 0 0 1 1 Scenario 3 (25M Total budget) Value if Commericial Failure Value if Technical Failure 0 0 0 0 0 0 0 0 0 Expected Value before Launch 0 0 0 0 0 0 0 0 0 16.8 0.7 2.2 2.9 24.4 4.5 10.0 3.4 21.4 Expected Value before Commercialization 14.8 -0.3 1.4 0.9 16.4 -0.5 8.0 2.9 16.4 Expected Expected Value in Commercial Development Value 6.1 -0.3 0.8 0.3 10.5 -0.4 5.7 1.2 10.7 3.1 -2.3 0.3 -2.7 6.0 -7.4 1.7 0.2 0.7 Scenario 4 (17M Total Budget) Value if Commericial Failure 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Value if Technical Failure Expected Value before Launch 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.8 0.7 1.8 2.9 20.2 3.5 10.0 3.4 21.4 Expected Value before Commercialization 11.8 -0.3 1.0 0.9 12.2 -1.5 8.0 2.9 16.4 Expected Expected Value in Commercial Development Value 4.8 -0.2 0.6 0.3 6.6 -1.0 5.7 0.9 10.7 1.8 -2.2 0.1 -2.7 2.1 -8.0 1.7 -0.1 0.7 COST 20.25 22.27 ECV PI Sum of Costs 1.0 -1.1 0.6 -0.9 1.3 -1.1 0.4 0.2 0.1 ECV PI 5.0 3.0 1.3 5.0 12.5 12.0 6.0 1.5 15.0 Sum of Costs 0.6 -1.1 0.1 -0.9 0.5 -1.1 0.4 -0.1 0.1 Ranking 5.0 3.0 1.3 5.0 12.5 12.0 6.0 1.5 15.0 Decision 2 7 5 8 1 9 3 6 4 GO KILL KILL KILL GO KILL GO GO KILL Ranking Decision 2 7 5 8 1 9 3 6 4 Solver GO KILL GO KILL KILL KILL GO KILL KILL 1 0 0 0 1 0 1 1 0 ECV 10.9461 1 0 1 0 0 0 1 0 0 ECV 3.5765 Solver COST 25.0 COST 12.3 ...
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    Final Answer

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    1. Discuss what each type of financial tool is (NPV, PI, ECV…), and what are the strengths and weaknesses of each tool.

    NPV: The net present value (NPV) method accounts for the present value of the future cash flows of alternative projects.
    simplest method for value maximization and it accounts time value of money. We keep on accepting projects as long as th
    values are positive. The disadvantages associated with NPV method is that it ignores probablities and risks. Financial goals
    the sole considerations in making decisions. It also fails to consider constrained resources. NPV assumes an all
    investiment decision but in real practice, new projects are investments are incremental or differential in nature.

    PI: Productivity index (PI) takes into account what NPV fails to consider, that is - probabilities. It assigns probabilitiy weigh
    cash flows and discounts them to the present while assuming technical success less R&D costs. Arbitrary assumptions of
    probabilities are hard to establish. Probability estimates are, by enlarge, unreliable.

    ECV: Expected commercial value (ECV) seeks to determine the maximiumthe value or commercial worth of a project that
    considers budget constraints. ECV takes into account probabilities of success or failure as well as risks.; furthermore, it t
    account future earning stream of projects while considering the probabilities of commercial and te...

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    Boston College

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