Assignment 4 : Scale and Timing in Project Evaluation

We are using scale because it can destroy good projects of too large or small size. The principle
of choosing the best size of the project with the highest NPV is to evaluate each incremental
change size of the project itself.

A7)

I. NPV and IRR are the most important measures to evaluate any project , so As what I
calculated I got the highest NPV which is S11 , NPV 80.21 , and the IRR is 28.41% so
we must to choose higher NPV
so the relationship between NPV and scale is when NPV maximized at scale , the
incremental NPV become Negative.
The most important methods to evaluate any project are NPV & IRR. Therefore, in S11,
the highest NPV was obtained with NPV 80.21 and the IRR was 28.41%, so higher NPV
should be selected. The relationship between NPV and scale becomes negative when the
NPV is maximized at scale. Meaning the NPV will be negative.
II.
a) The highest NPV on scale 11 is 80.21 and the IRR is 28.41%.
b) The incremental investment NPV is S11-S10 since NPV is a positive number of .35
POSITIVE.
c) The highest IRR is 34.52%.at scale 1 which is the highest IRR.
d) The incremental NPV approach we selects the scale S2-S1 with a NPV of 3.71 which is
positive, because it helps select the scale with the highest NPV.

B5)

I. I start the project in the sixth year (2023) from what I got. This is because it displays the
progress decision as a net save (0.20).
II. NPV of net saving is 38.53 and NPV seems high.
III. According to this rule below We chose depends
If Rkt>bt+1 + (kt+1-kt) … Postpone
If rkt<bt+1 + ( kt+1 – kt ) …. Start
So the net profit in year 2022 is 23.5 million.