Question

Key players of renewable energy generation are assumed to be looking to implement projects to build a green power plant at the CEZ. One such entity, has estimated the annual costs and revenues expected from such a project as shown in the table below:

Time/years	Revenue/USD	Cost/USD
0	$ 0	$15M
1	$5M	$3M
2	$16M	$1M
3	$25 M	$ 0

Required

Using this information, calculate the Net Present Value of the Project at a
10% discount rate.                                                                          

A bottom-up approach was used to compute the detailed cost for the project.
Give four (4) characteristics of bottom-up estimates.                     

 

The entity is currently implementing a similar project oversees and is keen to use it as a benchmark for the CEZ.

From the table below, find the PV, EV, CPI and EAC (assuming that the same
             cost performance continues) for one of the activities of the similar project at
             month 3.

            The activity duration is estimated for 4 months with a budget of $200,000.
             $50,000 is planned to be spent each month.
             At month 3, determine PV, EV, AC, CPI and EAC.

            What can you say about the current cost performance of the project providing
             that the CPI remains the same?                                                        

                           

Activity Time	Planned Expenditure	Money Spent	Status
Month 1	50,000	$50,000	100% Complete
Month 2	50,000	$ 50,000	100% Complete
Month 3	50,000	$ 30,000	70% Complete

Answer 1

NPV = 17,997,746.

Estimate at Completion (EAC) for this project - 4 months

Given in the question:

Budget at Completion (BAC) = 200,000

Actual Cost (AC) = 130,000 ==> money spent

Planned Value (PV) = 75% of 200,000 - month 4 - project completion

= 150,000

Earned Value (EV) = 67.5 % of 200,000 = = 135,000

month 3 - 70% completed 70% is what percentage of 25% that is each month project completion is 25% and in 4th month whole project is completed - 100%

month 1 - 25%

month 2 - 25%

month 3 - 17.5 % = 25% * 70%

total = 67.5%

To calculate the EAC, first you have to calculate the Cost Performance Index:

Cost Performance Index (CPI) = EV / AC

= 135,000 / 130,000

= 1.03

=>Cost Performance Index (CPI) = 1.03

Now,

Estimate at Completion (EAC) = BAC / CPI

= 200,000 / 1.03

= 194,174.75

Hence, the Estimate at Completion (EAC) is 194,174.75.

In other words, if the project continues to progress with CPI = 1.03 until the end, you will have to spend 194,174.75 to complete the project.

• If the CPI = 1, then EAC = BAC. This means you can complete your project with your approved budget.
• In the given problem the CPI > 1, then EAC < BAC. This means you can complete your project with in your approved budget.