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Handstar Case Excel Calculations

This document presents an NPV analysis of potential software projects for Handstar Inc. It calculates the estimated revenues, costs, and NPV for 6 projects over 3 years. The projects are ranked based on their NPV. The top projects selected within the available development hours of 10,525 hours are projects 1, 2, 4, 5, and 6, with a total NPV of $13.1 million. Hiring an additional software engineer for $130,000 would allow an additional project to be completed, increasing the total NPV by $443,018 and providing a net profit of $313,018. Therefore, the document suggests Handstar Inc. should hire the additional engineer.

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Nithya Nair
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308 views

Handstar Case Excel Calculations

This document presents an NPV analysis of potential software projects for Handstar Inc. It calculates the estimated revenues, costs, and NPV for 6 projects over 3 years. The projects are ranked based on their NPV. The top projects selected within the available development hours of 10,525 hours are projects 1, 2, 4, 5, and 6, with a total NPV of $13.1 million. Hiring an additional software engineer for $130,000 would allow an additional project to be completed, increasing the total NPV by $443,018 and providing a net profit of $313,018. Therefore, the document suggests Handstar Inc. should hire the additional engineer.

Uploaded by

Nithya Nair
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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HANDSTAR INC NPV CALCULATIONS

Hour rate $52.00


Discount rate 12%

Estimated revenue
Sr No. Product Project Type Development Hours for 1st year

1 Calendar + Email Update 1250 $ 750,000.00


2 Expense report Update 400 $ 250,000.00
3 Portfolio tracking Update 750 $ 500,000.00
4 Spreadsheet New Project 2500 $ 1,000,000.00
5 Web Browser New Project 1875 $ 2,500,000.00
6 Trip Planner New Project 6250 $ 1,300,000.00
6775
Development Hours Available = 2,500*4 = 10,000 Hour
Selecting Projects to Maximize NPV
Projects Selected(Highlighted in Blue): Project Ranked - 1,3,4,5,6
Total Development Hours= 6,775
Total NPV = $ 12,682,264.76
Revenue
Growth rate Cost Present Value
Year 1 Year 2 Year 3 of Revenue
0.90 $ 65,000.00 $ 750,000.00 $ 675,000.00 $ 607,500.00 $ 1,640,155.23
1.05 $ 20,800.00 $ 250,000.00 $ 262,500.00 $ 275,625.00 $ 628,662.11
1.05 $ 39,000.00 $ 500,000.00 $ 525,000.00 $ 551,250.00 $ 1,257,324.22
1.10 $ 130,000.00 $ 1,000,000.00 $ 1,100,000.00 $ 1,210,000.00 $ 2,631,024.51
1.15 $ 97,500.00 $ 2,500,000.00 $ 2,875,000.00 $ 3,306,250.00 $ 6,877,398.70
1.05 $ 325,000.00 $ 1,300,000.00 $ 1,365,000.00 $ 1,433,250.00 $ 3,269,042.97
NPV Ranking

$ 1,575,155.23 4
$ 607,862.11 6
$ 1,218,324.22 5
$ 2,501,024.51 3
$ 6,779,898.70 1
$ 2,944,042.97 2
Handstar Inc.

NPV Approach

Develop
Sr No. Product Project Type ment NPV Ranking
Hours
1 Calendar + Email Update 1250 $ 1,575,155.23 4
2 Expense report Update 400 $ 607,862.11 6
3 Portfolio tracking Update 750 $ 1,218,324.22 5
4 Spreadsheet New Project 2500 $ 2,501,024.51 3
5 Web Browser New Project 1875 $ 6,779,898.70 1
6 Trip Planner New Project 6250 $ 2,944,042.97 2

Development Hours Available = 2,500*5 = 12,500 Hour


Projects Selected(Highlighted in Blue): Project Ranked - 1,2,4,5,6
Total Development Hours= 10,525
Total NPV = $ 13,125,283.22

Additional Cost = $ 130,000.00


Additional NPV = $ 443,018.46
Net Profit = $ 313,018.46 >0

1. Considering the assumption that, total development hours are calculated with the factor that each
developer's efficiency is 90%
2. Irrespective of rankings, the update projects will be taken first and the new
projects will be taken based on ranking

SUGGESTION HIRE ADDITIONAL SOFTWARE ENGINEER

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