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 .- 8 'g e c.. -a e iQ ~ ii ~ en 4) 4),r, ~= c.. .~ ~o -on ,r, II ~oo .- + =<"1 '<;j '<t e " ~ ~ 4) = .s~ '~ '" '" 4) = .5 0 _.~ ~ = 0 0" !) 4) -a 8 =-- 0"0 ~a .- "" "0 0 ~ ii ~ = ""-a "0 > >'4) =t:g 0 .!!!-a = 4) c..c.. e c.. 0 ~ t) =" " 0 ~.~ ~~ a 'fj "" 4) ="0 0 .- >'''"' 1)/)0 = I)/) .- = ii e > 0 ~ t) >. = = < ;!"i .. 4) - 0 z ~ 1:: 0 c.. . 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 ~ - '- I 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 SHIRDI SAI ENGG COLLEGE 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) SHIRDI SAI ENGG COLLEGE