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Project Benefit Calculation

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  • #43753

    AJ
    Participant

    Can anyone give me some good examples of calcualting project benefits?  My project was to dispose of Obsolete and Slow Moving Inventory and our finance department is having a tough time calculating the project benefits.  To give you and example, lets say that resulting from the project, we were able to dispose of $1MM of obsolete inventory.  Finance is wanting to calculate only the Inventory Carrying Cost of  25% minus any negative sales of the obsolete inventory below book value. 
    I think that they are not giving the project the proper valuation of the project.  Any ideas on this?
    -aj

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    #139244

    neoTheChosenOne
    Participant

    Firstly,
    I am unable to understand where is six sigma in this project. Is the solution not straight forward (i.e. sell obsolete inventory out since you cant sell it as products any more?).Secondly there is no gain
    financially speaking, without involving time value of money,
    in actual cost terms, gain/loss = (-production costs of inventory) + (-carrying costs so far) + (-cost of sales, i.e. time/money spent in finding a buyer) + sale proceeds
    only sale proceeds in inwards cash flow. rest is outwards. My guess is the sum is negative. in opportunity cost terms, gain/loss =
    (-Value of Inventory assuming it was sold at original sale price) + (sales proceeds from selling as obsolete inventory)!which again is negative. so where is the saving?

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