Projects Panel

Description

This panel consists of two windows: one showing current projects and the other showing potential projects. See the Project page for details about how projects work in this simulation.

The current projects window displays the following information:

• Name: as of now, it is an ID identifier from the project database.
• Age: how many months have elapsed since its initial investment.
• Stage: a project can be in of three stages: development, growing and maturity. For projects in the first two phases, in parenthesis it is indicated how many months remain to go to the next stage.
• Book value of capital (in $M).
• Revenue (in $M).
• Revenue growth (%): annualized rate based on last month growth.
• Gross profit (in $M).
• Operating expenses (in $M).
• Operating income (in $M).
• Expected NPV (in $M).
• For projects in the maturity phase, you have the option to divest a project. When clicking on it, you will be shown either one of two options:
  • If the expected NPV is higher than the book value of capital, then you will sell the project. The proceeds are qualified as extraordinary gains in the income statement.
  • Otherwise, the project will be scrapped, the book value of capital (plus the working capital associated to the project) will be recovered as non-operating assets. These can be used for investing in new projects. In any case, the company will automatically do this when a project reaches maturity and the book value of capital is higher than the expected NPV (since by that time, the latter will be a stable, albeit not constant, number).

The potential projects window displays the following information:

• Months available: once it reaches 0, it will disappear from the table.
• Development time (in months): during this time, the project won't produce any revenue and it will incur on small operating expenses. Also, it is the number of months where the project appears in the development stage in the current projects window (once the company has invested in the project).
• Terminal age: this is the total number of months the project will be in the growing stage (assuming it succeeds). After that period, it will go to the maturity stage.
• Initial investment: this is the total upfront cost of the investment.
• Capital intensity (%): this is the proportion of the initial investment that requires capital goods. Think of the investment required in machinery, buildings, etc. for the project. This is relevant for two reasons:
  • First, this part of the initial investment will appear as book value of capital in the current investments window. Thus, it will be depreciated over time and not counted as expenses in the income statement (the depreciation rate is 5% per year). The rest of the investment will be considered a operating expense, and thus will be reflected immediately in the income statement.
  • Second, because you can only use non-operating assets for this part of the investment. For example, if you have $100M in non-operating assets and you want to invest in a project with initial investment of $100M with 50% capital intensity, you can use $50M of the non-operating assets for the project, while for the other half you will need cash.
• Expected monthly revenue.
• Expected gross margin (%).
• Expected operating expenses (%): as a percentage of revenues.
• Failure probability: at the end of the developing stage, the project will either succeed or fail. The failure probability reflects the latter. When a project fails, you recover 90% of the book value of capital as non-operating assets.
• Success expected NPV: this is the expected NPV on the event of success.
• Success median NPV: this is the median NPV on the event of success.
• Expected NPV: computed as $\text{expected NPV}=\text{Book value capital}\times 0.9\times \mathbb{P}(\text{fail})+(1-\mathbb{P}(\text{fail}))\times \text{success expected NPV}.$
• Profitability index: this is the ratio $\text{PI}=\frac{\text{expected NPV}}{\text{initial investment}}$.
• To invest in a project, click on the choose button, if it is available. When clicking on it, you will informed about the cost and the company's cash balance. If non-operating assets are available, you will also be informed about how much can be used to offset the initial investment, and the cash needed to finance the operation. If there is not enough cash, you will be informed of how much the company will need to borrow, as well as the line of credit remaining. Click confirm to do the investment, or cancel to cancel the investment. The choose button may not be available for the following reasons:
  • You've already invested in one project during the current turn (there is a one project per turn restriction).
  • The company's cost of capital is "out of bounds." Each project has a (hidden) discount rate which is compared with the company's cost of capital. If the cost of capital is more than 0.5% than the project discount rate, then the project won't be able to be selected. Note that this is unlikely to occur since the projects are always chosen to be in bounds with the cost of capital, but short-term shocks may disrupt this. The reason the project is not allowed to be chosen is that the expected NPV is not reliable anymore (since all the expected numbers were precomputed assuming the project's discount rate).

Strategy tips

• You don't need to manually choose projects every month since the CEO will pick one based on their stats. However, for maximum control, you can always choose projects yourself.
• It can be a good idea to invest in capital intensive projects if you have lots of non-operating assets since they won't cost you money (or much less than the total amount).
• A project with a high failure probability is not necessarily a bad thing. For once, you'll recover most of the capital assets, which can be reused in new projects. Also, this is compensated somehow with a higher expected NPV when the project is successful.
• Following the previous point, a "successful" project can be a bad thing since you'll be tied to it at least until it matures. The fact that a project has a high expected (or averaged) NPV on success doesn't mean that every project will have a high NPV. Indeed, many projects have negative medians, meaning that at least 50% of the "successful" projects will end up being a sink of money for the company.
• Picking projects with low terminal and development times can be a good strategy at the beginning since projects can be divested, and you can use this money to invest in more projects.

Related concepts

• Company Info Panel.
• Project.