Many investors consider that the business investment opportunities are great ways to maximize their returns. Usually, the experienced investors, who have a good eye for business opportunities, are looking for those options that ensure superior returns of their investments.
The two options are available to evaluate the opportunities of investment whether building a new plant (Project A) or an acquisition of a competitor’s existing plant (Project B).
Project A investment at US$ 7,650 Million
Project B investment at US$ 10,000 Million
Since the Project A is building a new plant, a comprehensive review of Capital & Operating Expenditures, Tax, revenue generating, etc has to be developed as per below table:
Development of the outcomes
Calculating the Net Cash Flow (NCF) and Pay Out Time (POT) for both Project A and B as per below tables for a 7 years life time:
Minimum Acceptable requirements
The criteria of economic selection are:
- The Fastest Pay Out time.
- The biggest Rate of Return.
- NPV calculated at 10% Discount.
- The biggest Discounted Profitability Index (DPI)
Analyze and compare the alternatives
Develop preferred alternative
Using another method, based on the Discounted Profitability Index (DPI) as per given formula:
Monitor and Evaluation (Post Mortem)
Since building of a newt plant will require strong project management skill to achieve as per economic calculation compare to acquisite existing plant, the success factors below shall be fulfilled:
- Good team work & coordination – meet on regular basis, good cross functional participation and good team commitment.
- Follow the project management practices.
- Follow HES procedures and approved standards & codes.
- Utilize VIP’s & Best Practices.
- Involve the right resources (e.g., contract development).
- Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.