3Project Appraisal Planning & Control

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USN05MBAFM425

1

Fourth Semester MBA Degree Examination, May/June 2010Project Appraisal, Planning and Control

Max. Marks: 100

Note: 1. Answer any FOURfull questionsfrom the Q.No.l to 7.2. Question No.8 is compulsory.

a. What is project management? (03Marks)b. Discuss the basic postUresassociated with the SPACE approach. (07Marks)c. Discuss the major issues on which an application for financial assistance from all India

financial institution seeks information. (to Marks)

a. State the various elementary investment options. (03Marks)b. Discuss about the biases in cash flow estimation. (07Marks)c. The balance sheet of Megha Ltd. at the end of year n (the year which is just over) is as

follows (Rs. in million) :

Time: 3 hrs.

2

3

The projected income statement and the distribution of earnings is given below:Sales = 25, cost of goods sold = 19, depreciation = 1.5, PBIT = 4.5, interest = 1.2,PBT = 3.3, tax = 1.8, PAT = 1.5, dividend = 1.0, RE = 0.5.(all in Rs, millions)During the year n + 1 the firm plans to raise a secured term loan of Rs.l million, repay aprevious term loan to the extent of 0.5 million. Current liabilities and provisions wouldincrease by 5%. Further the firm plans to acquire FA worth Rs.l.5 million and raise itsinventories by Rs.0.5 million. Receivables are expected to increase by 5%. The level of cashwould be balancing amount of the projected balance sheet. Given the above information,prepare: i) Projected cash flow statement ii) Projected balance sheet (to Marks)

a. What are the important components of the cost of a project? (03Marks)b. Discuss, for demand forecasting: i) Jury of executive method ii) Delphi method.(07Marks)c. Explain the UNIDO method of project appraisal. (to Marks)

4 a. What is the difference between accounting breakeven and financial breakeven? (03Marks)b. Discuss the meaning, objectives and scope of environmental impact assessment undertakn in

respect of a project. (07Marks)c. A company is considering a project, and the cash outlay and sources of finance are as below

(Rs. in lakh):Plant and machinery = 210 ; Working capital = 121. The proposed scheme of financing is :Equity = 120; Longterm loan = 108; Tradecredit= 38 ; Commercialbanks= 55.The lifeof the project is 10 years. Plant and machinery are depreciated at the rate of 15% p.a. as perW.D.V method. The expected annual net sales are Rs.360 lakhs. Cost of sales (includingdepreciation but excluding interest) is expected to be Rs.200 lakhs a year. The tax rate of thecompany is 50%. The long term loans carry an interest of 14% p.a and are repayable in eightequal installments starting from end of the 3rdyear. Short term advances from commercialbanks will be maintained at Rs.55 lakhs and will carry an interest of 14% p.a. It will be fullyliquidated after 10 years. Trade credit will be fully paid at the end of 10 years. You arerequired to prepare long term cash flow stream for 5 years of the project. (to Marks)

lof2

Liabilities Amount (Rs.) Assets Amount (Rs.)Share capital 5 Fixed assets 11

Reserves/surplus 4 Investment 0.5Secured loans 4 Current assets:Unsecured loans 3 Cash 1Current liabilities 6 Receivable 4Provisions I Inventories 6.5 11.5

23 23


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05MBAFM425

5 a. Whatdoyou understandby socialcost benefit analysis? (03Marks)b. Discuss the different ways of managing the project related risks. (07Marks)c. Triveni enterprise is determining the cash flow of a project involving replacement of an old

machine by a new machine. The old machine bought a few years ago has a book value ofRs.400000 and it can be sold to realise a post tax salvage value of Rs.500000. It has aremaining life of five years, after which its salvage value is expected to be Rs.160000. It isbeing depreciated annually at a rate of 25% under W.D.V method. The working capitalrequired for the old machine is RsAOOOOO.The new machine costs Rs.1600000.It isexpected to fetch a net salvage value of Rs.800000 after 5 years, when it will no longer berequired. The depreciation rate applicable to it is 25% under W.D.V method. The networking capital required for the new machine is Rs.500000. The new machine is expected tobring a saving of Rs.300000 annually in manufacturing costs (other than depreciation). Thetax rate applicable to the firm is 40%. Given the above information, workout the incrementalafter tax cash flow associated with the replacement project. (10Marks)

6 a. What is venture capital finance?b. Explain the process of project planning.c. Explain the prerequisites for successful project implementation.

(03Marks)(07Marks)(10Marks)

7 a. Describe the features of term loan. (03Marks) .

b. Explain the major investment options that require allocation of corporate resources.(07Marks)

c. X Ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20000. Theplant is expected to have a useful life of 2 years without any salvage value. The cash flowsand their associated robabilities for the two ears are as follows:

Cashflow Probabilii 8000 0.3ii 11000 0.4Hi 15000 0.3

2ndvear: If cash flow in 1s are Rs.8000, Rs.l1 000, Rs.15000Cash flow Probabili Cash flow Probabili Cash flow Probabili

i 4000 0.2 13000 0.3 16000 0.1ii 10000 0.6 15000 0.4 20000 0.8Hi 15000 0.2 16000 0.3 24000 0.1

Presuming that 10% of the cost of capital, plot the above data in the form of a decision treeandsuggestwhethertheprojectshouldbe taken up or not. (10Marks)

1st year:

8 Case study: (20Marks)For the following project, normal time, crash time, normal cost, crash costs are given. Find.the optimal project duration, considering an estimated indirect cost of Rs.120/day.

* * * * *

20f2

Time CostActivity Nonnal Crash Nonnal Crash

1-2 5 4 170 2401-3 9 6 310 5502-3 6 4 80 2002-4 10 8 130 2303-4 6 4 110 290


05MBAFM425Page No...1

USN

FNEW SCHEME

Fourth Semester M.B.A. Degree Examination , July 2007

Business Administration

Project Appraisal , Planning and Control[Max. Marks:100

Time: 3 hrs.]

Note :1 . Answer any FOUR questions from Q.Nol to Q.No.7

2. Question No.8 is compulsory.

3. Use of interest factor tables is allowed.

1 a.b.c.

Describe the importance and difficulties of capital investment. (03 MMarks

arks)Discuss the phases of capital budgeting. (10 Marks)Explain the facets of project analysis.

2 a.

b.

What are the three key criteria, which reflect the objective of maximizing (wealltth of

shareholder? (0r

esourceDiscuss the various elementary investment options, which influence

Marks)allocation strategy. itd (10h it Marks)

c. Explain the SPACE approach and the various postures associ wate .

iit(03

3

Ma rks)

3 a.b.c.

Describe the important iDiscuss about the biasesFollowing information

er a.nvestment crin cash flow estimatis given about reve

ion.nue and cost for a co

(0

mpanyMa`X

rks)YZ'.

(Amount in Rs.)

Year `0' Year 1-10

Investment (20,000) -Sales - 18000Variable cost (2/3 of sales) 12000

Fixed cost - 1000Depreciation (t0% fixed) 2000

i) Assuming that the cost of capital is 12% and tax rate @ 33.33%, calculate the

NPV. nder twot uii) Calculate the effect of variation in investment. Assume Investmen

situations i) Rs. 24000 ii) Rs. 18000. t is the riskhaiii) Assuming equal probability of all the three investment amounts w(1o Marks)

of the project in term of standard deviation of NPV?

MMarks)

4 a. What are the pros and cons of sensitivity analysis? (03

arks)b. Discuss the different ways of managing the project related risks.

0

c. A project requires Rs 5 million investment. The expected costs generation is Rs.lmillion per year for 8 years. The opportunity cost is 15% p.a. The cost of issuingequity is 5%. The project enables to raise Rs. 2.4 million debt at an interest rate of14% p.a. The debt will be paid in 8 equal annual installments at the end of each year.Tax rate is 40%. Calculate i) Base case NPV ii) Adjusted Net Prese nt

Marks)(APV). Contd...2


Page No...205MBAFM425

5 a. What are the sources of discrepancy between social cost and benefits of a projectand monetary cost and benefits of the project? (

03 Marks)b. Discuss the five stages of project appraisal in UNIDO method. (07 Marks)c. Describe the key steps in the public investment decision making process in India.

(10 Marks)

6 a. What are the various methods of demand forecasting?b. Discuss the properties of NPV rule

. (03 Marks)

c. Following information is available about a project. Initial investment outlay Rs. a100lacs, consisting of Rs. 80 Lacs on plant and machinery and Rs. 20 lacs on networking capital. Life of the project is 5 years. Net salvage value on fixed assets atthe end of 5 years is Rs 30 lacs. Net working capital will be liquidated at bookvalue. The incremental revenue from the project is Rs 120 lacs per year. Increase incost is Rs. 80 lacs per year. [Excluding depreciation, interest and tax]. The tax rateapplicable is 30%. Plant and Machinery will be depreciated at 25% p.a. on WDVbasis. Calculate and show the projected cash flow of the project. ( 10 Marks)

7 a. Describe the features of `term loan'.

b. Discuss the procedures associated with availing term loan. (03 Marks)

c. Explain the pre requisites for successful project implementation. (07 Marks)

(10 Marks)

8 CASE STUDY:

A project consists of 6 activities and their time estimates are given below. (time inweeks)

Activity to tm t1-2 9 12 211-3 6 12 182-4 1 1.5 53-4 4 8.5 102-5 10 14 244-5 1 2 3

a.

b.

c.

d.

Draw the network diagram showing the details.Calculate the event slack and determine critical path.Calculate activity floats.Find the standard deviation of critical path duration.

(20 Marks)


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