Time Value of Money as ROI

As a newly hired Project Manager, you have been assigned to prepare a bid proposal for a project that your organization is interested in bidding on to possibly obtain a new contract. The assigned project is estimated to cost on the magnitude of $20 million over the course of 5 years. Your organization intends to borrow the entire amount up front to meet customer requirements and pay the debt off over the 5-year life of the project at an interest rate of 10% compounded annually. Including the principal and interest, what is the total cost of your project at the end of the five year life cycle? How much do you need to bid or earn from the work in terms of dollars to pay back the loan and still make some profit and cover operating expenses?

Show all work and calculations to include selected formulae. Based on your calculations what is the minimum estimate your organization should bid on your proposal and why is this so?   

The Assignment should include a written narrative to explain your calculation and what it means, including commentary and analysis on how the organization should plan their activities and discuss covering costs and profit margins (use your project management skills and think like a Project Manager). If you are a project manager you need to be able to calculate what is the minimum estimate your organization should bid on your proposal to the customer to complete a project. Your explanation should demonstrate sound analysis and critical thinking.   In completing this Assignment, please recall that you should calculate the Future Value. I will need to see the future value calculation for the initial $20M investment for each year up to five years. 

As a gentle reminder, the future value calculation is as follows:  FV=PV(1+i)5.   

To simplify this Assignment, think of a making annual payments on the 5 year loan --make it a simple and clear operation—earn enough to repay the loan, cover operating costs and make a profit.  

The Assignment (should be similar in format as all of our GM591 assignments week 1-6) must be submitted as a Word document. 

You are free to use a spreadsheet for your personal calculations, but you must transfer the calculation detail to the paper (as an annex after your conclusion) and you must discuss all of the components of the Assignment in a Word document. 

Please do not submit your excel spreadsheet, only the word document.