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Title Name Amity Solved Assignment MFM for Project Planning Appraisal and Control
University AMITY
Service Type Assignment
Course Master-in-Finance-Management-(MFM)
Semister Semester-III Cource: Master-in-Finance-Management-(MFM)
Short Name or Subject Code Project Planning Appraisal & Control
Commerce line item Type Semester-III Cource: Master-in-Finance-Management-(MFM)
Product Assignment of Master-in-Finance-Management-(MFM) Semester-III (AMITY)

Solved Assignment


  Questions :-

                                                                                                           Project Planning, Appraisal & Control

Assignment – A

1.      Describe briefly the aspects of a business environment that needs to be monitored as well as the dimensions along which a firm may appraise its strengths and weaknesses for identifying investment opportunities.

2.      The sales of a certain product during a 14 year period have been as follows:

Period

Sales (Rs)

1

2,000

2

2,200

3

2,100

4

2,300

5

2,500

6

3,200

7

3,600

8

4,000

9

3,900

10

4,000

11

4,200

12

4,300

13

4,900

14

5,300

Find out the least square regression line for the data given.

For the data given above assume that forecast for the period 1 was Rs 2,100. If the constant (α) is equal to 0.3, derive the forecast for the periods 2 to 14.

3.    What is Project Implementation Schedule? How it is important? What information is required for preparing the project implementation schedule?

4.    What are replacement decisions? Explain three components of the cash flow stream of a replacement decision.

5.    A company is considering an investment proposal to install new milling controls at a cost of Rs 50,000. The facility has a life expectancy of 5 years and no salvage value. The tax rate is 35 percent. Assume that the firm uses straight-line depreciation method and the same is followed for tax purposes. The estimated cash flows before depreciation and tax (CFBDT) from the investment proposal are as follows:

Year

CFBDT

1

Rs 10,000

2

Rs 11,000

3

Rs 12,500

4

Rs 13,500

5

Rs 21,000

a. Compute the following

(i)        Payback period

(ii)       Accounting Rate of Return

(iii)      IRR

(iv)           NPV at 10 % discount rate.

6.   (a) What are key issues considered by financial institutions while appraising a project for term financing?

(b) Discuss the key consideration in determining the debt-equity ratio of the firm.

7.    What is Performance review and control in respect of the projects? What are advantages of conducting it? What problems are encountered in performance review and how can they overcome?

8.    A project has the following time schedule:

Activity

Time in weeks

1-2

4

1-3

1

2-4

1

3-4

1

3-5

6

4-9

5

5-6

4

5-7

8

6-8

1

7-8

2

8-9

1

8-10

8

9-10

7

Construct PERT network and compute

  • TE (Tail Event) and TL (Head Event) for each event.
  • Float for each activity.
  • Critical path and its duration

 

 

 

Assignment- B

Case Study

1. Prepare a detailed report with reference to the points secretary asked you in paragraph 1 above.

2. List out similarities between the two projects and dissimilarities.

3. List out the activities required immediately. You can imagine data and figures wherever necessary.

 

 

 

Assignment- C

1. Risks will be identified during which risk management process (es)?

a)  Quantitative risk analysis and risk identification

b)  Risk identification and risk monitoring and control

c)  Qualitative risk analysis and risk monitoring and control

d)  Risk identification

e)  None of the above.

 

 

2.   Who is ultimately responsible for quality management on the project?

a)  Project engineer

b)  Project manager

c)  Quality manager

d)  Team member

 

 

3.   A project manager has just been assigned to a new project and has been given the
preliminary project scope statement and the project charter. The first thing the project
manager must do is:

a)    Create a project scope statement.

b)    Confirm that all the stakeholders have had input into the scope.

c)    Analyze project risk.

d)    Begin work on a project management plan.

 

 

4.   You are taking over a project during the planning process group and discover that six individuals have signed the project charter. Which of the following should most concern you?

a)    Who will be a member of the change control board

b)    Spending more time on configuration management

c)    Getting a single project sponsor

d)    Determining the reporting structure

e)    Both (a) and (b)

 

 

5.   A project manager is employed by a construction company and is responsible for the furnishing of the completed building. One of the first things that the project manager for this project should do is to write a:

a)    Work breakdown structure.

b)    Budget baseline.

c)    Project charter.

d)    Project plan.

 

 

6.   All of the following are characteristics of a project EXCEPT:

a)    Temporary

b)    Definite beginning and end

c)    Interrelated activities

d)    Repeats itself every month

 

 

7.   The equivalent of cost reimbursable contracts is frequently termed:

a)    Back charge contracts.

b)    Fixed price contracts.

c)    Progress payment contracts.

d)    Cost plus contracts.

 

 

8.   A buyer extends a formal invitation that contains a scope of work that seeks a response that will describe the methodology and results that will be provided to the buyer. This is called:

a)    Invitation to bid.

b)    Request for information.

c)    Request for proposal.

d)    Request for bid.

 

 

9.   A project manager must have some work done by an outside contractor. This work has a great deal of risk associated with it, and it has become very difficult to find a contractor willing to take on the job. Which of the following types of contract would offer the greatest incentive to the contractor?

a)    Cost plus percentage of cost as an award fee

b)    Cost plus fixed fee

c)    Cost plus incentive fee

d)    Firm fixed price.

 

 

10. The project management process groups are:

a)    Initiating, planning, expediting, and control.

b)    Plan, organize, develop, and control.

c)    Plan, do, observe, commit.

d)    Initiating, planning, executing, controlling, and closeout.

 

 

11. In which project management process group is the detailed project budget created?

a)    Initiating

b)    Before the project management process

c)    Planning

d)    Executing

 

 

12. Contract closure is different from administrative closure in that contract closure:

a)    Occurs before administrative closure.

b)    Is the only one to involve the customer?

c)    Includes the return of property.

d)    May be done more than once for each contract.

 

 

13. During the full life cycle of the project, a plot of the project’s expected expenditures will usually follow a characteristic..S.. shape. This indicates that:

a)    There is a cyclic nature to all projects.

b)    Problems will always occur in the execution phase.

c)    There are high expenditures during closeout.

d)    The bulk of the project budget will be spent in the execution phase.

 

 

14. What conflict resolution technique is a project manager using when he says, "I cannot deal with this issue now!"

a)    Problem solving

b)    Forcing

c)    Withdrawal

d)    Compromising

 

 

15. A group of related projects that are managed in a coordinated way that usually include an element of ongoing activity is called a:

a)    Major project.

b)    Project office.

c)    Program.

d)    Group of projects.

 

 

16. To control the schedule, a project manager is reanalyzing the project to predict project duration. She does this by analyzing the sequence of activities with the least amount of scheduling flexibility. What technique is she using?

a)    Critical path method

b)    Flowchart

c)    Precedence diagramming

d)    Work breakdown structure

e)    Both (a) and (b).

 

 

17. A project manager has just been assigned to a project. The document that recognizes the existence of the project is called:

a)    The statement of work.

b)    The project assignment.

c)    The project charter.

d)    The product description.

 

 

18. A manager that manages a group of related projects is called a:

a)    Project manager.

b)    Project expediter.

c)    Program coordinator.

d)    Program manager.

 

 

19. If project A has a net present value (NPV) of Rs 30,000 and project B has an NPV of Rs 50,000, what is the opportunity cost if project B is selected?

a)    Rs 23,000

b)    Rs 30,000

c)    Rs 20,000

d)    Rs 50,000

 

 

20. A project manager is using weighted average duration estimates to perform schedule network analysis. Which type of mathematical analysis is being used?

a)    Critical path method

b)    PERT

c)    Monte Carlo

d)    Resource leveling

 

 

21.       An activity has an early start (ES) of day 3, a late start (LS) of day 13, an early finish (EF) of day g, and a late finish (LF) of day ig. The activity:

a)    Is on the critical path.

b)    Has a lag.

c)    Is progressing well.

d)    Is not on the critical path.

 

 

22. Which phase of the project is likely to have the greatest amount of its funding spent?

a)    Initiating

b)    Executing

c)    Planning

d)    Closeout

 

 

23. Which of the following represents the estimated value of the work actually accomplished?

a)    Earned value (EV)

b)    Planned value (PV)

c)    Actual cost (AC)

d)    Cost variance (CV)

 

 

24. A project manager is managing a project. The original scope baseline of the project was budgeted at Rs 100,000. Since works on the project started there have been seventeen authorized and approved changes to the project. The changes have a value of Rs 17,000 and the cost of investigating them prior to their approval was Rs 2,500. What is the current budget (in Rs) for the project?

a)    100,000

b)    114,500

c)    117,000

d)    119,500

e)    None of the above

 

 

25. You are managing a project in a just in time environment. This will require more attention, because the amount of inventory in such an environment is generally:

a)    45 percent.

b)    10 percent.

c)    12 percent.

d)    0 percent.

 

 

26. A task was scheduled to use two persons, full time, and take two weeks to complete.
Instead, the project manager was only able to assign one person to this task. At the end of two weeks, the person assigned to the task was 75% complete. What is the cost
performance index?

a)    0.75

b)    1.50

c)    0.25

d)    1.15

 

 

27. Which of the following is considered to be a simulation technique?

a)    PERT analysis

b)    GERT analysis

c)    Monte Carlo analysis

d)    Critical path method

 

 

28. Project A has an internal rate of return (IRR) of 21 percent. Project B has an IRR of 7
percent. Project C has an IRR of 31 percent. Project D has an IRR of ig percent. Which of these would be the BEST project?

a)    Project A

b)    Project B

c)    Project C

d)    Project D

 

 

29. The program evaluation and review technique (PERT) method of scheduling differs from the critical path method (CPM) because the PERT method:

a)    Uses weighted averages of activity durations to calculate project duration.

b)    Uses dummy activities to represent logic ties.

c)    Uses free float instead of total float in the schedule calculations.

d)    Uses bar charts instead of logic diagrams to portray the schedule.

 

 

30. In attempting to complete the project faster, the project manager looks at the cost
associated with crashing each activity. The best approach to crashing would also include looking at the:

a)    Risk impact of crashing each activity.

b)    Customer´s opinion of which activities to crash.

c)    Boss´s opinion of which activities to crash and in which order.

d)    Project life cycle phase in which the activity is due to occur.

 

 

31. The project is not completed until:

a)    The project scope is completed, administrative closure is completed and payment is received.

b)    Formal acceptance is received, and any other requirements for project closure as stated in the contract are met.

c)    The customer is satisfied and final payment is received.

d)    Lessons learned are completed.

 

 

32. During project executing, a team member comes to the project manager because he is not sure of what work he needs to accomplish on the project. Which of the following documents contain detailed descriptions of work packages?

a)    Work breakdown structure (WBS) dictionary

b)    Activity list

c)    Preliminary project scope statement

d)    Project scope management plan

 

 

33.       You are asked to prepare a budget for completing a project that was started last year and then shelved for six months. All the following would be included in the budget except?

a)    Fixed costs

b)    Sunk costs

c)    Direct costs

d)    Variable costs

 

 

34. During the project life cycle, in which part of the life cycle will risk be the lowest?

a)    Initiation

b)    Planning

c)    Execution

d)    Closeout

 

 

35. A project manager managing any project should perform risk analysis at what stage of the project:

a)    Just before any major meeting with the client.

b)    On a regular basis throughout the project.

c)    Only when justified by the awareness of new risks becoming a possibility.

d)    When preparing the project plan.

e)    None of the above

 

 

36. You are the project manager for a high visibility project. The margin on this project is low, and it is extremely important that the cost estimates for the work on the project be accurate. While reviewing the cost estimates for this project you notice that one of the cost estimates for an element in the WBS is 10% higher than two previous projects for very similar work. What should you do?

a)    Accept the estimate because you trust all of the people on your project team, and they are responsible for estimates.

b)    Reduce the estimate and add the additional budget to the management reserve.

c)    Ask the person responsible for the estimate to explain the difference and bring supporting information to you.

d)    Reduce the estimate and add the additional budget to the contingency reserve.

 

 

37. The project life cycle differs from the product life cycle in that the project life cycle:

a)    Does not incorporate a methodology.

b)    Is different for each industry.

c)    Can spawn many projects.

d)    Describes project management activities.

 

 

38. A manager and the head of engineering discuss a change to a major work package. After the meeting, the manager contacts you and tells you to complete the paperwork to make the change. This is an example of:

a)    Management attention to scope management.

b)    Management planning.

c)    A project expediter position.

d)    A change control system.

 

 

39.       All of the following are parts of direct and manage project execution except?

a)    Identifying changes

b)    Using a work breakdown structure

c)    Implementing corrective actions

d)    Setting up a project control system

 

 

40. A project manager does not have much time to spend planning before the mandatory start date arrives. He therefore wants to move through planning as effectively as possible. Which of the following would you recommend?

a)    Make sure you have a completed preliminary project scope statement and then start the WBS.

b)    Create an activity list before creating a network diagram.

c)    Document all the known risks before you document the high-level assumptions.

d)    Finalize the quality management plan before you determine quality metrics.

 

 

41. Which of the following is not a typical project milestone?

a)    Completion of design

b)    Production of a prototype

c)    Training of project members

d)    Completed testing of the prototype

e)    Approval of a pilot run

 

 

42. Which of the following are organizational structures used to tie the project to the parent firm?

a)    Pure project

b)    Functional project

c)    Matrix project

d)    Only A and B

e)    Only B and C

f)     A, B, and C

 

 

43. The advantages of pure project include all but:

a)    The project manager has full authority over the project.

b)    Team pride, motivation, and commitments are high.

c)    Decisions are made quickly.

d)    A team member can work on several projects.

e)    Team members report to one boss.

 

 

44. The advantage(s) of the network planning models over the Gantt chart is (are) that:

a)    they are easy to use and quite widely understood

b)    the precedence relationships in network scheduling are explicitly shown

c)    they are less costly to use

d)    both A and B

e)    both B and C

 

 

45. "Slack" refers to the difference between:

a)    latest and earliest times

b)    finish and start times

c)    observed and predicted times

d)    optimistic and pessimistic times

e)    none of the above

 

 

46. Which of the following would not be considered in deciding how far to minimum-cost schedule (crash) a project?

a)    Project overrun penalties

b)    Incentives for early completion

c)    Indirect project costs (e.g. interest on a construction loan)

d)    The normal duration times of tasks not on a critical path

e)    How far individual tasks can be crashed

 

 

47. Which statement is true about Project Scheduling?

a)    Slack is defined as the difference between the earliest start and the latest finish of a task.

b)    The critical path seldom has a slack time of zero.

c)    Project crashing is an effort to maximize project duration.

d)    The earliest finish for a task is equal to the early start plus the task duration.

e)    None of the above statements are true.

 

 

48. There is an activity "A". The earliest activity "A" can be completed is 8 minutes, the most likely time is 10 minutes, and the latest activity "A" can be completed is 12 minutes. Assume that a Beta Distribution is used to describe the activity time. What is the expected time needed to complete activity A?

a)    8 minutes

b)    10 minutes

c)    12 minutes

d)    11 minutes

e)    None of the above

 

 

49. There is an activity "A". The earliest activity "A" can be completed is 8 minutes, the most likely time is 10 minutes, and the latest activity "A" can be completed is 12 minutes. Assume that a Beta Distribution is used to describe the activity time. Which of the following is the standard deviation of this activity A?

a)    sqrt (4/36)

b)    sqrt (16/36)

c)    sqrt (10/36)

d)    4/36

e)    16/36

  Answers :-

                                                 

                                                                                                               Project Planning, Appraisal & Control

Assignment – A

1.Describe briefly the aspects of a business environment that needs to be monitored as well as the dimensions along which a firm may appraise its strengths and weaknesses for identifying investment opportunities.

Ans.

     Aspects of a business environment, which needs to be monitored:

  1. A new market demand which is identified for a specific product or service offering
  2. A competing company closes or changes in business direction
  3. Changes in legislation or regulation

 

Factors depend on which a firm may appraise its strengths and weaknesses for identifying investment opportunities:

Primary Factors:

  • Feasibility study over alternative solutions
  • Identification of risk involved, probable likelihood of happening risk, risk impact & responsive actions required to mitigate, time & cost involved.

 

      Other important Factors:

  • Location advantage
  • Market demand for the desired product / service
  • Customer preferences / database available
  • Raw material / suppliers availability
  • Manpower resources availability
  • Finance availability from financial institutions
  • Local laws, taxes & statutory compliance.

 

 

  1. The sales of a certain product during a 14 year period have been as follows:

Period

Sales (Rs)

1

2,000

2

2,200

3

2,100

4

2,300

5

2,500

6

3,200

7

3,600

8

4,000

9

3,900

10

4,000

11

4,200

12

4,300

13

4,900

14

5,300

Find out the least square regression line for the data given.

For the data given above assume that forecast for the period 1 was Rs 2,100. If the constant (α) is equal to 0.3, derive the forecast for the periods 2 to 14.

Ans.

 

Period

Sales (Rs)

       
 

Let it be ´X´

Let it be ´Y´

 X - x (mean)

 Y - y (mean)

[(X-x)(Y-y)]

 (X - x) square

 

1

2,000

-6.5

-1464

9518

42.25

 

2

2,200

-5.5

-1264

6954

30.25

 

3

2,100

-4.5

-1364

6139

20.25

 

4

2,300

-3.5

-1164

4075

12.25

 

5

2,500

-2.5

-964

2411

6.25

 

6

3,200

-1.5

-264

396

2.25

 

7

3,600

-0.5

136

-68

0.25

 

8

4,000

0.5

536

268

0.25

 

9

3,900

1.5

436

654

2.25

 

10

4,000

2.5

536

1339

6.25

 

11

4,200

3.5

736

2575

12.25

 

12

4,300

4.5

836

3761

20.25

 

13

4,900

5.5

1436

7896

30.25

 

14

5,300

6.5

1836

11932

42.25

             

Total

105

48500

 

 

57850

227.5

             

Count / ´n´

14

14

       
             

Mean (total/´n´)

7.5

3464

       
             

Regression line is given as: y = mx + b

     
             

M is the slope which can be computed using = (Total of [(X-x)(Y-y)]) / Total of (X - x) square

     

 = 57850 / 227.5

 
     

Therefore slope ´m´ = 254.29

 
     

 

     

therefore point of intercept or regression line = y = mx + b

   
     

 = 3464 = 254.29*7.5 + b

 
     

 b = 3464-1907

   
     

Therefore b = 1557/-

   
             

Where ´m´ is the slope, ´m´ & ´b´ provide a best fit line for the data

 

 ´Y´ is a sales & ´X´ is a period

       
         

 

 

  1. What is Project Implementation Schedule? How it is important? What information is required for preparing the project implementation schedule?

Ans.

Project implementation/execution: This is the very important and longest phase in which deliverables are physically built and presented to the customer for acceptance.

During this process, a group of management processes (managing time, cost, quality, change risks & issues, procurement-handling suppliers, customer acceptance etc.,) are undertaken to monitor and control the deliverables.

Project manager is responsible for the deliverables. Project Manager has to prepare & be ready with the following information in order to prepare project implementation schedule.

  1. Documentation of project plan.
  2. Work Breakdown structure (WBS) – include a hierarchical set of phases, activities and tasks to be undertaken on the project.
  3. Resources (labor, equipment and materials) with quantities, specifications, roles, responsibilities and skill sets in respect of human resources etc.,
  4. Quantity of money required for each stage in the project.
  5. Quality target provide a set of criteria and standards, which must be achieved to meet the expectations of the customer.
  6. Set of actions to be taken formulated to prevent risk from occurrence.
  7. Criteria to judge each deliverable for customer acceptance
  8. The types of information to be distributed, the methods & frequency of distributing information to stakeholders & responsible person for delivering information.
  9. Description of the products (goods and services) to be procured from suppliers, make or buy arrangements, schedule of procurement etc.,

 

 

  1. What are replacement decisions? Explain three components of the cash flow stream of a replacement decision.

Ans.

Replacement decisions: It is a type of capital budgeting decision is made when existing machinery / project is going to be replaced with new machinery/project.

In simple, whether replacement of a machine can be done in place of existing machine at a particular point of time for additional benefits. This is being decided by Replacement decision.

Replacement decision can be carried out by 2 methods:

  1. Incremental cash flow method
  2. Based on Equated Annual cost method (EAC) = [net present value (NPV) / present value annuity factor] – a project/machinery with EAC can be selected.

Components of the cash flow stream of replacement decision:

  • Incremental Initial outflows = [Purchase of new asset + Working capital expenditure in new asset – Sale/realizable value of old asset – Working capital re-capture of old asset].
  • Operational incremental net flows = [year wise operational cash flows from new asset – year wise operational cash flows from old asset] which is being discounted at time value of money.
  • Incremental Terminal flows = [Salvage value of new asset + Working capital re-capture of new asset – scrap value of old asset – Working capital re-capture of old asset] which is being discounted at time value of money.
  • Net present value (NPV) = 1 + 2 + 3
  • Replacement decision: If NPV is positive, then replace the existing machinery / project with new one, else continue with the existing.

 

  1. A company is considering an investment proposal to install new milling controls at a cost of Rs 50,000. The facility has a life expectancy of 5 years and no salvage value. The tax rate is 35 percent. Assume that the firm uses straight-line depreciation method and the same is followed for tax purposes. The estimated cash flows before depreciation and tax (CFBDT) from the investment proposal are as follows:

Year

CFBDT

1

Rs 10,000

2

Rs 11,000

3

Rs 12,500

4

Rs 13,500

5

Rs 21,000


  1. Compute the following

(i)        Payback period

(ii)       Accounting Rate of Return

(iii)      IRR

  • NPV at 10 % discount rate.

Ans.

(i) Payback period:

                 

Year

CFBDT

Depreciation*

PBT

Taxes @ 35%

PAT

CFAT

Cumulative CFAT

 

(A)

(B)

( C)

(D) = (B) - (C )

(E)

(F) = (D) - (E)

(G) = (F) + (C )

   
                 

0

 (50,000)

       

 (50,000)

 (50,000)

 

1

 10,000

10000

 -

0

 -

 10,000

 (40,000)

 

2

 11,000

10000

 1,000

350

 650

 10,650

 (29,350)

 

3

 12,500

10000

 2,500

875

 1,625

 11,625

 (17,725)

 

4

 13,500

10000

 3,500

1225

 2,275

 12,275

 (5,450)

 

5

 21,000

10000

 11,000

3850

 7,150

 17,150

 11,700

 

Total

       

 11,700

     

Payback period = Base year +( [unrecoverd cashflow of base year / cash flow of next year of unrecovered year] * 12)

   

 = 4 + ([5450 / 11700]*12)

         

there fore payback period = 4 years + 5.5897months = 4 years 6 months

     
                 

CFBDT = Cash flows before depreciation & taxes

         

* depreciation - adopted SLM method & no salvage value, therefore Rs.50000/5 years

     

 (i.e.) Rs.10,000/- at the end of every year

       

PBT = Profits before taxes

           

PAT = Profits after taxes

           

CFAT = Cash flows after taxes

           

Base year = (just previous year of unrecovered cashflows turns into 0 or +ve)

     
                 
                 

(ii) Accounting rate of return : (Average profits after depreciation & taxes / Initial Investment (net)) * 100

 
                 

Average profits after depreciation & taxes = Total Profits after tax / no of years

     
     

 = 11700 (as could be seen above) / 5 years

   
     

 = Rs.2340/- per year

       
                 

Initial investment = Rs.50,000/-

           
                 

Therefore, accounting rate of return per year = (Rs.2340 / Rs.50,000) * 100

 

   

 

 

 

 = 4.68%

 

 

 

   
                 

(iv) NPV at 10% discount Rate :

         
                 

Year

CFAT

Discount rate *

Discounted cash flows

         
 

(refer (i)

 @ 10% (TVM)

           
                 

0

 (50,000)

1.000

 (50,000)

         

1

 10,000

0.909

 9,091

         

2

 10,650

0.826

 8,802

         

3

 11,625

0.751

 8,734

         

4

 12,275

0.683

 8,384

         

5

 17,150

0.621

 10,649

         

NPV

 

 

 (4,341)

         
                 

Net present value = Present value of inflows - Present value of outflows

     

Therefore, NPV = 45,659 - 50,0000

           
                 

* Time value of money is calculated as 1 / (1+r) power n

         
                 

(iii) IRR:

               
                 

IRR is the rate of return at which NPV = 0

         
                 

Which is calculated as follows: L1 + [NPV L1 / NPV L1 - NPV L2] (L2 - L1)

     
                 

Where L1 = 1st discount guess rate

           

 L2 = 2nd discount guess rate

           
                 

L1 assumed as 7%

             
                 

Therefore NPV computed at 7% discount rate as below:

         
                 

NPV at 7% discount rate:

         
                 

Year

CFAT

Discount rate *

Discounted cash flows

         
 

(refer (i)

 @ 5% (TVM)

           
                 

0

 (50,000)

1.000

 (50,000)

         

1

 10,000

0.935

 9,346

         

2

 10,650

0.873

 9,302

         

3

 11,625

0.816

 9,489

         

4

 12,275

0.763

 9,365

         

5

 17,150

0.713

 12,228

         

NPV

 

 

 (270)

         
                 

L2 assumed as 6%

             
                 

Therefore NPV computed at 6% discount rate as below:

         
                 

NPV at 7% discount rate:

         
                 

Year

CFAT

Discount rate *

Discounted cash flows

         
 

(refer (i)

 @ 6% (TVM)

           
                 

0

 (50,000)

1.000

 (50,000)

         

1

 10,000

0.943

 9,434

         

2

 10,650

0.890

 9,478

         

3

 11,625

0.840

 9,761

         

4

 12,275

0.792

 9,723

         

5

 17,150

0.747

 12,815

         

NPV

 

 

 1,211

         
                 
                 

Applying the above in IRR formulae, we get = 7 + [-270/(-270+1211)](7 - 6)

     
                 
     

 = 7 +[ -270 / 941](1)

       
                 
   

therefore IRR

 = 7 - 0.287

         
     

 = 6.713%

         

 

 

 

ASSIGNMENT - B

  1. (a) What are key issues considered by financial institutions while appraising a project for term financing?

Ans.

The primary aspect considered by financial institutions is feasibility of the project. They review feasibility of the project in the following aspects:

1) Technical aspects (product/service demand, potential etc.,)

2) Commercial aspects (how margins are expected to yield, pricing etc.,)

3) Economic aspects (government rules & regulations regarding such product or service etc.)

4) Financial implication (source of finances & mode of funding, etc)

5) Managerial aspects (managerial team behind the project/ capability of management etc)

6) Security going to be offered, repayment terms & capability etc.

7) Time period etc.

 

 

1 (b) Discuss the key consideration in determining the debt-equity ratio of the firm.

Ans.

Debt – equity ratio of the firm:

From management’s perspective, Debt funds are always cheaper & it doesn’t result in dilution of control. Raising debt fund enhances the financial risk with the firm, since obligation towards capital & interest repayments. Debt funds are secured against assets of the company.

On the other side, Raising fund through equity involves low risk but result in dilution of control. Repayment arises only in the event of liquidation

Ideal ratio for the firm 2 : 1 (i.e.) a firm can have two times of equity as its debt funds.

 

 

  1. What is Performance review and control in respect of the projects? What are advantages of conducting it? What problems are encountered in performance review and how can they overcome?

Ans.

Performance review and control in respect of the projects:

The Performance review & control is undertaken to determine whether all the planned activities and tasks have been successfully completed and to proceed further in the project. In simple, this is basically a checkpoint to ensure that the project has achieved its stated objectives as planned.

Advantages of Performance review: The following can be determined:

  1. Is the project currently on schedule
  2. Is the project currently within budget
  3. Any critical project risks
  4. Any high priority issues
  5. Any substantial changes etc.,

      Problems encountered in performance review and how can they overcome:

A performance review is a critical step in delivering a successful project. If reviews are not undertaken formally within the project life cycle, then the project board will have reduced control over the progress of the project, thereby increasing the level of risk to the overall project delivery.

To overcome the above, a project manager will present the performance review at a board meeting detailing the below:

  1. The original project vision, objectives, scope and deliverables
  2. The deliverable completed by the project to date
  3. The progress of the project against the delivery dates
  4. Areas of slippage in terms of time, cost and quality
  5. Key issues and risks that require attention.

 

  1. A project has the following time schedule:

Activity

Time in weeks

1-2

4

1-3

1

2-4

1

3-4

1

3-5

6

4-9

5

5-6

4

5-7

8

6-8

1

7-8

2

8-9

1

8-10

8

9-10

7

Construct PERT network and compute

  • TE (Tail Event) and TL (Head Event) for each event.
  • Float for each activity.
  • Critical path and its duration

    Ans.

         Note: Network diagram is given in excel format:

From the above network diagram, following paths have been identified :

       
 

Activity:

       

Time in weeks

           
           

Breakup

 

Total

       
                             

1

1 - 2 - 4 - 9 - 10

     

 4+1+5+7

 

17

         

2

1 -3 -4 -9 -10

     

 1+1+5+7

 

14

         

3

1 - 3 - 5 - 7 - 8 - 9 - 10

 

 

 1+6+8+2+1+7

25

 Critical path & its duration

4

1 - 3 - 5 - 7 - 8 - 10

 

 

 1+6+8+2+8

25

 Critical path & its duration

5

1 - 3 - 5 - 6 - 8 - 9 - 10

   

 1+6+4+1+1+7

20

         

6

1 - 3 - 5 - 6 - 8 - 10

   

 1+6+4+1+8

20

         
                     
                             

 

Activity

duration

Tail event

Head event

 

 

 

 

 

EST

LFT

EFT

LST

Total float

1

2

3*

4*

5

6

7

 

 

 

 

(3 + 2)

(4 - 2)

(6 - 3)

             

 1 - 2

4

0

12

4

8

8

 1 - 3

1

0

1

1

0

0

 2 - 4

1

4

13

5

12

8

 3 - 4

1

1

13

2

12

11

 3 - 5

6

1

7

7

1

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