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Most organizations don’t have the luxury of performing every projects that is proposed. Even Consulting organizations that sell project management services must pick and choose the projects on which they want to work. Selection and evaluation methods help organization decide among alternative project and determine the tangible benefits to the company of choosing or not choosing a project.
Project Selection Methods
The process of investing money as well as reinvesting the interest earned there on is called compounding. The future value or compounded value of an investment after ‘n’ years when the interest rate is r% is given by the formula FV = PV (1+r)^n where FV is the future value and PV is called the present value
Present value is calculated by the formula PV = FV / (1+r)^n where FV is the Future value.
Net present value of a project is the sum of present value of all cash flows
Net Present Value = Sigma FV/(1+r)^n.
Accept if NPV > 0 and reject if NPV < 0.
Payback Period is the length of time required to recover the initial cash outlay , payback period is ideally to be shorter the better.
Example of Calculation of Future Value:-
Example of Calculation of Present Value :
In this article there are important pointers given for Project Selection and Assessment and how to use formulas to calculate the Present value and Future Value and depending on this results we can select the project suitable, in case of any queries and comments the Author Suresh Menon can be Contacted at suresh@digitalstream.in or at testconsultants@outlook.com.