Management and the Technology Professional – B302

Case study answer 3

(NPV Calculated based on interest rate of 9% (project length is third of a year, therefore k = 0.03) )

If I was the software engineer I would start the project because based on my decision tree it offers the most gain. The node for starting the project has three times value of the opposing node: cancel.

If the project was cancelled their is the chance that Microsoft will not acquire Yahoo and therefore no loss would occur. However if the acquisition happens then it would be deemed a 90 grand loss. The resulting cancel branch has a net present value of -26 grand, making it an unwise choice.

However if the project is started then it can either succeed or fail. Without more knowledge it is impossible to make accurate guesses and therefore the values chosen for completion and failure are 0.5. The sum of the starting the project is just over 13 grand based on my estimates. Although there is the chance of not completing the project resulting in a loss. However the net present value of completing the project out weighs failure making starting the project into a greater chance of success than cancelling the project.

Even if the chance of failing the project was one 100 percent. The best route would be to still start the project. This is due to the fact that I have estimated that Microsoft have a 0.7 chance of a successful acquisition due to the amount offered for each share and that the only people opposing such a move are antitrust organisations. Since Microsoft only own 3 percent of the online search market, any arguments would soon cease. The resulting effect on the decision tree if failure was 1.0 is the start branch having an npv of -25 grand and the cancel branch having -26.2 grand. Although it would be unwise to take on a project with a loss in this situation it would still be the lesser. Therefore the most viable option is to start the project.

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