IMT-85: Project Appraisal and Financing

IMT - 85: PROJECT APPRAISAL AND FINANCING

PART - A

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Q1. What should be the level of inquiry in a brainstorming session scheduled for the initial screening of a project idea?

Q2. Who all participate in the brainstorming process for the initial screening of a project idea?

Q3. For an economy passenger car project, what 'critical success factors' would you think of?

Q4. Compare and contrast pattern-based and causal model based forecasting techniques.

Q5. 'Market analysis and technical analysis ultimately help in understanding the risk involved in a proposed project'. Explain this statement

PART - B

Q1. Described the circumstances Where you can justifiably use the accounting rate of return method payback period method of project evaluation.

Q2. A firm had calculated the weighted average cost of capital of 8.35 per cent before announcing new projects and their financing. After the announcement the weighted average cost of capital changed to 8.42 per cent. The total capital before the project announcement was Rs10 crore and the size of the new project is Rs.1 crore. Calculate the required rate of return (cut-off rate) for the project using the adjusted WACC approach.

Q3. If you are a decision maker for a project, what type of evaluation technique would you select for the evaluation of the project?

Q4. How can a firm reduce its unsystematic risk?

Q5. What do you mean by 'contracting out' the risk?

PART - C

Q.1 A proposed project can offer the NPV as follows:

Outcome (NPV) Rs. Probability

2500 0.3

2100 0.3

1800 0.4

Measure the dispersion in outcome using various methods. Which method of measuring risk would you prefer? Why?

Q2. How does the concept of economic cost benefit analysis help in designing government policies?

Q3. Write an essay on the environment analysis of a project. Why is it so important today even from the business perspective?

Q4. What is a location-specific advantage? How is it useful in determining the global presence of a firm?

Q5. What are the alternative ways in which a firm can establish its international presence? Described them along with the suggestive framework giving the guidelines to a firm which is preparing for global operations.

CASE STUDY-1

Delhi Bridge Construction Company plans to build a bridge over a crossing. The construction work is expected to last 5 years and will be undertaken by a private sector firm to which Rs. 100 lakhs will be payable at the end of year 1 and Rs. 50 lakhs each at the end of next 4 years.

The annual maintenance cost of the bridge is expected to be Rs. 10,00,000 at current prices. This cost is expected to increase at 7%-p.a. During 16th year after completion, the bridge will require a major repair work requiring materials of Rs. 100 lakhs and expenses of Rs. 100 lakhs, both in current prices. The prices of materials are expected to rise at the rate of general inflation for 16 years and constant thereafter but expense cost is expected to rise 6% over the general inflation for the first three years and then will increase in line with general inflation rate.

The required rate of return may be taken as 17% p.a. and the life of the bridge may be taken as infinite. Number of vehicles using the bridge per day is 20,000 and the toll tax is expected to increase in line with general inflation. Find out the minimum toll tax chargeable per vehicle in the first year of operation so that the investment in bridge may break-even over its life. (Assumption: All annual cash flows arise on the last day of the year.)

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