Hi,

I would appreciate of someone elaborate/explain the answers for following questions -

1) A company has to make a choice between two projects, because the available resources in money and kind are not sufficient to run both at the same time. Each project would take 9 months and would cost $250,000. The first project is a process optimization which would result in a cost reduction of $120,000 per year. This benefit would be achieved immediately after the end of the project.The second project would be the development of a new product which could produce the following net profits after the end of the project:

1. year:       $     15,000
2. year:     $     125,000
3. year:     $     220,000

Assumed is a discount rate of 5% per year. Looking at the present values of the benefits of these projects in the first 3 years, what is true?
1) Both projects are equally attractive.
2) The first project is more attractive by app. 7%.
3) The second project is more attractive by app. 5%.
4) The first project is more attractive by app. 3%.


2) You are running a project for a customer based on a cost-reimbursable contract with the following terms:
 
Target costs:     $     1,000,000
Fixed fee:     $     100,000
Benefit/cost sharing:     80% / 20%
Price ceiling:     $     1,200,000

Which is the PTA (= point of total assumption, break point) of the project?
1) $1,300,000
2) $1,500,000
3) $80,000
4) $1,125,000