SHIRDI SAI ENGINEERING COLLEGE

SHIRDI SAI ENGINEERING COLLEGE

SHIRDI SAI ENGINEERING COLLEGE
SHIRDI SAI ENGINEERING COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
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USN
05MBAFM425
1
Fourth Semester MBA Degree Examination, May/June 2010
Project 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 a
previous term loan to the extent of 0.5 million. Current liabilities and provisions would
increase by 5%. Further the firm plans to acquire FA worth Rs.l.5 million and raise its
inventories by Rs.0.5 million. Receivables are expected to increase by 5%. The level of cash
would 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 UNIDOmethod of project appraisal. (to Marks)
4
a. What is the difference between accountingbreakeven 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; Longtermloan = 108; Tradecredit = 38 ; Commercialbanks= 55. The life
of the project is 10 years. Plant and machinery are depreciated at the rate of 15%p.a. as per
W.D.V method. The expected annual net sales are Rs.360 lakhs. Cost of sales (including
depreciation but excluding interest) is expected to be Rs.200 lakhs a year. The tax rate of the
company is 50%. The long term loans carry an interest of 14%p.a and are repayable in eight
equal installments starting from end of the 3rdyear. Short term advances from commercial
banks will be maintained at Rs.55 lakhs and will carry an interest of 14%p.a. It will be fully
liquidated after 10 years. Trade credit will be fully paid at the end of 10 years. You are
required 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 0.5
Secured loans 4 Current assets:
Unsecured loans 3 Cash 1
Current liabilities 6 Receivable 4
Provisions I Inventories 6.5 11.5
23 23
SHIRDI SAI ENGG COLLEGE
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05MBAFM425
5
a. Whatdoyouunderstandby 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 of
Rs.400000 and it can be sold to realise a post tax salvage value of Rs.500000. It has a
remaining life of five years, after which its salvage value is expected to be Rs.160000. It is
being depreciated annually at a rate of 25% under W.D.V method. The working capital
required for the old machine is RsAOOOOO. The new machine costs Rs.1600000.It is
expected to fetch a net salvage value of Rs.800000 after 5 years, when it will no longer be
required. The depreciation rate applicable to it is 25% under W.D.V method. The net
working capital required for the new machine is Rs.500000. The new machine is expected to
bring a saving of Rs.300000 annually in manufacturing costs (other than depreciation). The
tax rate applicable to the firm is 40%. Given the above information, workout the incremental
after 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. Describethe 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. The
plant is expected to have a useful life of 2 years without any salvage value. The cash flows
and their associated robabilities for the two ears are as follows:
Cashflow Probabili
i 8000 0.3
ii 11000 0.4
Hi 15000 0.3
2ndvear: If cash flow in 1s are Rs.8000, Rs.l1 000, Rs.15000
Cash flow Probabili Cash flow Probabili Cash flow Probabili
i 4000 0.2 13000 0.3 16000 0.1
ii 10000 0.6 15000 0.4 20000 0.8
Hi 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 tree
andsuggestwhethertheprojectshouldbetaken 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 Cost
Activity
Nonnal Crash Nonnal Crash
1-2 5 4 170 240
1-3 9 6 310 550
2-3 6 4
80 200
2-4 10 8 130 230
3-4 6 4
110 290
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SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
SHIRDI SAI ENGG COLLEGE
05MBAFM425
Page No...1
USN
F
NEW 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 M
Marks
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
esource
Discuss the various elementary investment options, which influence
Marks)
allocation strategy.
it d
(10
h it
Marks)
c.
Explain the SPACE appr
oach and the various
postures associ
w ate
.
i it
(03
3
Ma
rks)
3 a.
b.
c.
Describe the important i
Discuss about the biases
Followinginformation
er a.
nvestment cr
in cash flow estimat
is given about reve
ion.
nue and cost
for a co
(0
mpany
Ma
`X
rks)
YZ'.
(Amount in Rs.)
Year `0' Year 1-10
Investment (20,000) -
Sales - 18000
Variable cost (2/3 of sales)12000
Fixed cost - 1000
Depreciation (t0%fixed)2000
i)Assumingthat the cost of capital is 12%and tax rate @ 33.33%, calculate the
NPV.
nder two
t u
ii)Calculate the effect of variation in investment. Assume Investmen
situations i)Rs. 24000 ii)Rs. 18000.
t is the risk
ha
iii)Assumingequal probability of all the three investment amounts w
(
1o Marks)
of the project in term of standard deviation of NPV?
M
Marks)
4 a. What are the pros and cons of sensitivity analysis? (0
3
arks)
b. Discuss the different ways of managingthe project related risks.
0
c. A project requires Rs 5 million investment. The expected costs generation is Rs.l
million per year for 8years. The opportunity cost is 15%p.a. The cost of issuing
equity is 5%. The project enables to raise Rs. 2.4 million debt at an interest rate of
14%p.a. The debt will be paid in 8equal annual installments at the end of each year.
Tax rate is 40%. Calculate i)Base case NPVii)Adjusted Net Prese
nt
Marks)
(APV). Contd...2
SHIRDI SAI ENGG COLLEGE
P a g e N o . . . 2
05MBAFM425
5 a. What are the sources of discrepancy between social cost and benefits of a project
and 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 makingprocess in India.
(10 Marks)
6 a. What are the various methods of demand forecasting?
b. Discuss the properties of NPVrule
. (03 Marks)
c. Followinginformation is available about a project. Initial investment outlay Rs. a100
lacs, consistingof Rs. 80 Lacs on plant and machinery and Rs. 20 lacs on net
workingcapital. Life of the project is 5 years. Net salvage value on fixed assets at
the end of 5 years is Rs 30 lacs. Net workingcapital will be liquidated at book
value. The incremental revenue from the project is Rs 120 lacs per year. Increase in
cost is Rs. 80 lacs per year. [Excludingdepreciation, interest and tax]. The tax rate
applicable is 30%. Plant and Machinery will be depreciated at 25%p.a. on WDV
basis. 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 availingterm loan
. (03 Marks)
c. Explain the pre requisites for successful project implementation. (
07 Marks)
(10 Marks)
8CASE STUDY:
A project
consists of 6 activities and their time estimates are given below. (time in
weeks)
Activity
to
tm
t
1-2
9 12
21
1-3
6 12
18
2-4
1 1.5
5
3-4 4
8.5
10
2-5
10 14
24
4-5
1 2 3
a .
b .
c .
d .
Draw the network diagram showingthe 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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