Business and Management Project Assessment

Business and Management Project Assessment for Piper Industries Corp Assessing the Projects Piper Industries Corp. has three potential projects; Juniper, Palomino and Stargazer. Each has a different risk profile and cover differing time periods. Each project should be assessed in order to determine which may provide the best investment for the firm. The first consideration is the payback period; this is the time taken for the project to repay the initial investment and 'break even'.

Using the figures given for the annual return on investment, the payback period may be assessed. It is assumed that the figure given as the return on investment is the net revenues received each year. For Juniper, with assumed revenues of 250,000 per annum the payback period is 1.3 years, for Palomino, with revenues assumed to be only 427,500 , which makes an allowance for the 5% margin of error which may be present, gives a payback period of 1.53 years.

The Stargazer project, if all the costs, including those already incurred are considered the payback period would be 3.76 years. However, the investment amount for Stargazer included sunk costs, but when assessing different projects and looking to the future sunk costs should be disregarded (Manez et al., 2009). Table 1; Payback period Juniper Palomino Stargazer (with sunk costs) Stargazer (without sunk costs) Payback period (in years) 1.3 1.53 3.76 2.5 Assessed in this manner, the Juniper project has the shortest payback period and the Stargazer has the longest payback period.

However, the firm may wish to look not only at payback period but also the level of return that may be created; this is more important than the payback period, longer term investments may create longer term profits. There are several tools which may be used, including calculations such as net present value (NPV), internal rate of return (IRR) and return on investment (ROI). The simplest of these is the return on investment.

The three calculations are presented; it is assumed that Juniper does give 3 years of returns and that the return for years 3-7 of Stargazer remains the same as year 3. Table 2; Return on investment Juniper Palomino Stargazer ROI per annum 250,000 427,500 Variable Lifetime (years) 3 5 7 Total return 750,000 2,137,500 4,600,000 Investment 325,000 655,000 575,000 ROI The ROI indicates that Stargazer will give the highest rate of return, and with a project that will last for 7 years, it is also the longest term return.

If all projects had an equal risk profile, then the Stargazer may be the most attractive due to the return, even when broken down to an annual return the Stargazer still gives.