KARACHI UNIVERSITY BUSINESS SCHOOL

University of Karachi

FINAL EXAMINATION, JUEN 2010; AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 683
MBA IV

Date: July 18, 2010

Question 1
(a)
(b)

Question 2
(a)
(b)

Question 3
(a)
(b)

Question 4
(a)

Max Marks: 60
Max Time: 3 Hours

What do you understand by a project and its kinds?

Discuss a Project Development Cycle in detail.

What important questions are raised prior to market analyses and their
importance?
What are the essential of market analyses while preparing a market
analyses for a development project?

Explain the cost of the project and its mean of financing.

While considering the means of financing a project what analyses is
carried out for its capital structure?

Cash Flow stream associated with the following two A AND B projects is
given below:
Year

Project A

Project B

0
A
B
C
D
E
F
G
H

(300,000)
50,000
70,000
75,000
80,000
60,000
190,000
100,000
250,000

(300,000)
60,000
80,000
70,000
90,000
75,000
170,000
120,000
260,000

REQUIRED:
(a) For each of the project A and B calculate the payback period, NPV and
Benefit Cost Ratio. Assume a discount rate is 12%.
(b) What project is to be selected on this basis?

Question 5
High Corporation Ltd. Is planning to establish two mutually exclusive projects for
investment X and Y. projected cash flow of these projects given below:
Year
0
1
2
3
4
5
6
7

(200,000)
(150,000)
50,000
170,000
80,000
100,000
140,000
150,000

(200,000)
(140,000)
40,000
180,000
90,000
95,000
150,000
160,000

REQUIRED:
(a)
Calculated the modified Internal Rate of Return (MIRR) of each project
assuming the reinvestment rate is 12%.
(b)
Which project is suitable for investment and should be accepted for
investment?
Question 6
(a)

Drive the general formulae for the following: each step is to be given for
arriving at the formulae
(i)
Present value of an Annuity
(ii)
Future value of an Annuity
(iii)
Formula for Perpetuity

(b)

What is the present value of an income stream which provides an income

of Rs. 5000 a year for the first five years and then Rs. 6000 a year for even
thereafter, if the discount rate is 12%?

KARACHI UNIVERSITY BUSINESS SCHOOL

University of Karachi

FINAL EXAMINATION, JUNE & JULY 2009: AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 683
MBA IV

Date: July 03, 2009

Time Allowed: 3 Hours

Max Marks: 60

Instructions: Attempt Six questions only. All questions carry equal marks.
Question: 1
10
a.
How would you define a project? Why the Capital Budgeting decisions are so
important and what difficulties are encountered while making such decisions?
b.

Discuss the Broad phases of Capital Budgeting Process.

Question: 2
10
Describe briefly the business environments that need to be monitored as well as the
dimensions along which a firm may appraise its strengths and weakness for identifying
the investment opportunities.
Question: 3
10
a.
When appraising a project what key questions are raised prior to Market
Analysis?
b.
How would you find out the effective demand of an industrial project? Describe
all the Sources of information you would tap in order to accomplish this task.
Question: 4
10
What broad issues are covered under Technical and Engineering Aspects while preparing
feasibility report of an industrial project? Give description of each.
Question: 5
10
Cash flow streams for two alternative investments, A and B are:
Rupees
Rupees
Year
A
B
0
(200,000)
(300,000)
1
40,000
75,000
2
35,000
85,000
3
40,000
70,000
4
45,000
60,000
5
50,000
80,000
6
70,000
100,000
7
160,000
120,000
8
140,000
130,000
Required
a.
For each A & B calculate precisely the payback period, net present value and
Benefit Cost Ratio. Assume a discount rate of 12 percent.
b.
Which project is to be accepted or rejected o the basis of above three criteria?

Question: 6
10
a.
Derived the General Formulae for the followings. Each step to be given for
arriving at the result:
1.
Present Value of and Annuity
2.
Future Value of an Annuity
3.
Formula for the Perpetuity
b.
What is the present value of an income stream which provides Rs. 3000 a year
for the first five years and Rs. 4000 a year for even thereafter, if the discount rate is 10%?
Question: 7
10
Standard Corporation is considering two mutually exclusive investments, Project P and
Project Q. the expected cash flows of these projects are as follow:
Year

Project P

Project Q

0
1
2
3
4
5
6

Rs. (1000)
Rs. (1200)
700
1,000
1,500
2,000
4,000

Rs. (1000)
Rs. (1200)
600
9,000
1,000
1,600
3,500

Required
What is the Modified Internal Rate Return (MIRR) of each project assuming the
reinvestment rate of 15% and Weighted Average Cost of Capital (WACC) 12%?

KARACHI UNIVERSITY BUSINESS SCHOOL

UNIVERSITY OF KARACHI

FINAL EXAMINATION: AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 683
MBA IV
Date: January 21, 2009
Max Marks: 60

Time Allowed: 3 Hours

Instructions:

Attempt any five questions.

Q.No.1 (a)
(b)
(c)

What questions would you raise in SWOT analysis?

The scope for private sector has been expended in recent years. Comment
Discuss the steps involved in a sample survey.

Q.No.2 (a)
(b)

What types of information are required for market and demand analysis?
Describe and evaluate the end-use method for forecasting.

Q.No.3 (a)
(b)

What are the components of cost of projects? Discuss them in detail.

Describe the various sources of finance that may be used to meet the cost of project.

Q.No.4 (a)

what are the basic principles for measuring costs and benefits of capital expenditure
proposal from the financing angle?
What are the components of cash flows associated with project?

(b)
Q.No.5 (a)
(b)

Briefly discuss investment appraisal criteria with the classification of discounting and
non-discounting?
Decision Tree Analysis is a useful tool for the analysis of the project. Discuss the
technique of Decision Tree Analysis.

Q.No.6

Social cost benefit analysis is a methodology develops for evaluating investment project
from the social point of view. Explain.

Q.No.7

the G Corporation is considering three possible capital projects for the next year. Each
project has a one year life and project returns develop on the next years state of the
economy. The estimated rates of return are shown in the table:
________________________________________________________________________
Probability
State of the
of each State
Rates of Return
economy
Occurring
if State Occurs
A
B
C
Recession
0.25
10%
9%
14%
Average

0.50

14%

13%

12%

Boom

0.25

16%

18%

10%

Required
(a)
What is the expected rate of return on the portfolio?
(b)
What are variance and standard deviation of the portfolio?
(c)
What are the co-variance and correlation coefficient between project A and B?
Between Project A and C

KARACHI UNIVERSITY BUSINESS SCHOOL

University of Karachi

FINAL EXAMINATION, JUNE 2008: AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 683
MBA IV

Date: July 07, 2008

Time: 3 Hours
Max Marks: 60
Instructions: Attempt Six questions only. All questions carry equal marks.
Q.No.1 (a)

what important factors should be considered to analyze the market and financial
aspects of any project?

(b)

Waheed Electronics is considering an investment in a new, improved chip

making machine. The company estimates that there is a 20% chance of a 30%
loss, a 25% chance of a 6% loss, a 30% chance of a 25% return, and a 25%
chance of a 40% return. What is the expected return from this investment?

(c)

Differentiate between quantitative and causal method of demand forecasting.

Q.No.2 (a)
(b)

Q.No.3

Briefly explain ecological analysis.

Discuss the key consideration in determining the debt equity ratio of a firm.
When should a firm use more equity?
Fine Crab Company is analyzing some new investment proposals. The after tax
cash flows for three of these proposals are shown below.
_____________________________________________________________
Year
Proposals
0
1
2
3
4
A
-Rs. 100
Rs. 40
Rs. 40
Rs. 40
Rs. 40
B
-Rs. 50
Rs. 25
Rs. 25
Rs. 25
C
-Rs. 90
Rs. 20
Rs. 30
Rs. 40
Rs. 50
_________________________________________________________________
Required
Compute of each project:
a.
Payback.
b.
NPV at 20%
c.
IRR
d.
PI at 20%.

Q.No.4 (a)

purchase of a copying machine by a law office is expected to save Rs. 1,000 a

year for five years. The machine will cost Rs. 5,000 and can be depreciated
straight line for five years and then sold for Rs. 500. Given the law firms tax rate
of 40%, what are the annual cash flows arising from the purchase and what is its
net present value? Assume a 10% discount rate.

(c)

A new investment project is to be demolish an existing gas station and construct

a small shopping mall. Which of the items should be treated as incremental cash
flows relevant to the investment decision?

Q.No.5 (a)

Naeem, Inc., is considering two mutually exclusive projects. Their cash flows are
as follows:
_________________________________________________________________
Projects
0
1
2
3
4
5
X
Rs. -10,000 Rs. 3,500 Rs. 3,500 Rs. 3,500 Rs. 3,500 Rs. 3,500
Y
Rs. -20,000 Rs. 6,000 Rs. 6,000 Rs. 6,000 Rs. 6,000 Rs. 6,000
The after returns on Naeems debt and equity are 8% and 14%, respectively.
Naeem has a capital structure of 66.6% debt and 3.33% equity.
If Naeem used the WAAC approach to evaluate its projects, which project would
it select?

(b)`

What is projected balance sheet? For preparing the projected balance sheet what
information is needed?

KARACHI UNIVERSITY BUSINESS SCHOOL

University of Karachi

FINAL EXAMINATION, JANUARY-2008: AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 683
MBA IV

Date:
Max Marks: 60

Time: 3 Hours

PART A (30 Marks)

Instructions: Attempt any three questions. Each question carries 10 marks.
Q.No.1 Explain the main features of projects. Highlight the feature of infrastructure development
projects in hydel power generation in Pakistan.
Q.No.2 Discuss the method of calculating financial internal rate for project selection.
Q.No.3 Evaluating the various bases of project identification in developing countries like
Pakistan. Which of these is the most important one for manufacturing industries using imported
raw materials?
Q.No.4 Differentiate between the concepts of economic and financial justification of projects
PART B (30 Marks)
Q.No.5 Compute the financial internal rate of return and net present value for the following
project.
Total Investment
Rs. 10 billion
Equity
Rs. 2 billion
Loan
Rs. 6 billion
Construction Period
Three years
Phasing of Capital expenditure
Year 1
Year 2
Year 3
Total
Equity
1
1
2
Loan
2
2
4
8
_____
______
______
______
Total:
3
3
4
10
_____
______
______
______
Loan Period:
13 years
Moratorium period for loan repayment
3 years
Interest rate
15 % per annum
Income Tax Rate
30%
Annual Operating cost:
Rs. 2 billion
Annual revenue
Rs. 4 billion
Economic life (after project completion) 10 years
Salvage value
Rs. 2 billion
Opportunity cost of capital
12% per annum

KARACHI UNIVERSITY BUSINESS SCHOOL

University of Karachi

FINAL EXAMINATION, SPRING-2006: AFFILIATED COLLEGES

PROJECT APPRAISAL: BA (M) - 642
MBA IV

Date: July 01, 2006

Max Marks: 60

Time: 3 Hours

INSTRUCTIONS
1)
Attempt any two questions.
2)
All questions carry equal marks.
____________________________________________________________________________
Q.No.1

Chemicals Ltd. Is establishing a chemical plant, the cost of which is expected to be Rs. 11,440 thousands as
follows:
COST OF PROJECT AND MEANS OF FINANCE
The cost of the project is estimated at Rs. 11,440 thousands as follows:
Land and site development
Building
Plant and machinery
Miscellaneous fixed assets
Preliminary expense
Pre-operating expenses including interest during construction
Contingency margin
Working capital (this will remain same throughout 5 years of operations)
Total
The proposed means of financing are a follows:
Share capital
Term Loans
State governments special incentive loans (Repayable in 6 installments after
5 years)
Total

Rs. 000
390
1,500
6,200
400
200
1,150
850
11,440

4,000
6,400
1,040
11,440

BASIC ASSUMPTIONS UNDERLYING FINANCIAL PROJECTTIONS

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12

13

The construction period will last for one year.

The company would work for 300 days per year on a 2 shift basis. The installed capacity on this basis works
out to 2880 tons per annum.
The company will start commercial production on January 1, of year 1. the expected capacity utilization will
be 50% in the first year, 60% in the second year, and 70% for the third year and beyond.
The average ales realization per kilogram of chemical will be 12 net of excise duty.
The cost of raw materials and consumable will be 65% of sales. The cost of power will be 4% of sales.
Wages and salaries are expected to be Rs. 0.9 million, Rs. 1 m and Rs. 1.2 m for the first, second, and third
operating years and 1.5 thereafter.
Factory overhead expenses will be Rs. 50,000 for each year.
Administration expenses will be Rs. 100,000 per year.
Selling expense will be 10% of sales.
The term loan will be repaid in 5 equal yearly installments, with the first installment falling due at the end of
the second operating year. The interest rate on the outstanding term loan will be Rs. 10%.
The bank finance foe working capital will cost 15%.
the depreciation rates for company law purchases are as follows:
Building
3.34 percent
Plant and machinery
8.09 percent
Miscellaneous fixed assets
5.15 percent
The preliminary expenses may be written off in 5 equal annual installments.

14.
15.
16.
17.
18.

The firm plans to pay dividend from the second year. The dividend rates are proposed to be 12%.
Tax will be 30% of profit after tax.
Life of the project is assumed to be five years.
The salvage of fixed assets of the plant is expected to be Rs. 5,000,000.
Working capital can be disposed off after 5 years at Rs. 200,000.
Required
a.
b.
c.
d.

Q.No.2 (a)`
(b)
(c)

Prepare the projected income statement on the basis of the above assumptions.
Yearly Cash Accruals for five years.
Net present value, IRR, ARR of the project. Sponsors expect return on their equity at the
rate of 12.5%. Whereas interest on long term loan of Rs. 6,400 is 10% mentioned earlier.
What criteria, in your opinion, from the above is considered better?

Define the Discounting and non-discounting criteria. How these criteria are applied while accepting
or rejecting a project.
Give the merits and demerits of each discounting and non-discounting criteria.
The Indus company is considering two mutually exclusive investments, project P and Project Q.
The expected cash flows are as follows:
Year

Project P
Rs. 000
0
(1,000)
1
100
2
(500)
3
300
4
2,000
5
4,000
Residual value after 5 years
250

Project Q
Rs. 000
(1,000)
200
400
600
800
100
300

Required
a.
b.
c.
Q.No.3 (a)

(b)
Q.No.4

What is the IRR of each project?

Which project would you choose if the cost of the capital is 10%.
What is the pay back period of each of the above projects?

In the per-feasibility study or preliminary project report, the basic elements of the project are
estimated on a rough basis. In the full feasibility study, all elements of the project are elaborated in
detail in order to give a reliable basis for the subsequent evaluation of the project. Please explain
the elements of a project.
What is sensitivity analysis? When is it applied? What are the advantages of it?
The Haleem Tobacco Company evaluates projects by using a discount rate that is equal tot the Tbill plus the estimated standard deviation of returns. (Standard deviation of the IRR) of the project.
They are evaluating the following 10-years projects:
Expected
Standard
Project
Deviation of
Returns
_______________________________________________________________________________
W
150,000
30,000
20,000
0.04
X
140,000
25,000
75,000
0.06
Y
170,000
35,000
125,000
0.08
Z
230,000
50,000
200,000
0.12
Initial Outlay
(Rs.)

Expected Cash
Flow
(Rs.)

Expected
Salvage value
(Rs.)

Required
(a)
Find NPV of each project if the T-bill rate is 85. if the projects are independent, which
one(s) should they adopt? If the projects are mutually exclusive, which one (if any)
should they adopt?
(b)
Find NPV of each project if the T-bill rate is 12%. If the projects are independent, which
one(s) should they adopt? If the projects are mutually exclusive, which one (if any)
should they adopt?
(c)
Is the NPV in part (b) really an NPV? Why or why not?