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Project Management (Business)
Return on Investment is applicable to decision making by the management by making use of projected proceeds in addition to the time value of money. The weighed up total cost of the project over the five-year time period of its life cycle $20 million. The intent of the organization is the plan to borrow this full amount and from then on recompense the debt every year in 5-year period at an annual compound interest rate of 10%. The future value of the loan amount taken by the organization at the end of the five-year period will be $32,210,200. Therefore, this implies that the minimum amount that the organization has to generate is $6,442,040 in order to recompense for the loan amount borrowed.
Project Overview
The bid proposal made by the organization is for a project in which the business is engrossed in perhaps attaining a new contract. The appraised cost of the project is $20 million over a period of five years. The company plans to borrow this whole amount and thereafter recompense the debt every year in 5-year period at an annual compound interest rate of 10%. The purpose of this bid proposal is to outline the total cost of the project at the end of the five-year life cycle and also determine the amount required to...
This is in order to offer the organization on whether it ought to bid on the proposal and reasons thereto.
Amount Required to Bid or Earn from the Project to Pay Back the Loan
The main plan of the organization after bidding for the project and attaining it is to repay the principle amount borrowed back in the five-year period, which is the life cycle of the project. This will encompass the interest accrued in that five-year period as well. The principal amount borrowed will be annually compounded at an interest rate of 10% every year for the five-year period of the project. Compound interest is paid on the amount invested and the accumulated interest. The compound interest is determined by the following equation:
FV = P x (1 + i) n
Where FV = Future value
P = Principle
n = Time period (years)
i = Interest for every time period
FV = 20,000,000 x (1 + 0.1)5
= 20,000,000 x (1.61051)
= $32,210,200
The future value of the loan amount taken by the organization at the end of the five-year period will be $32,210,200 as…
References
Project Management Institute. (2013). A guide to project management body of knowledge (PMBOK® Guide) (5th ed.). Newtown Square, PA: Project Management Institute.
Resch, M. (2011). Strategic project management transformation: Delivering maximum ROI & sustainable business value. Fort Lauderdale, FL: J. Ross Publishing, Inc.
Silvius, A. J. G. (2006). Does ROI matter? Insights into the true business value of IT. The Electronic Journal Information Systems Evaluation, 9(2), 93-104.
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