Project Appraisal, Financing and Control — DU Bachelor of Management Studies Previous Year Question Papers

Uniquepaper code : Name ofthepaper : Project Appraisal, Financing and Control a) A flm is considering an investment project with an initial outlay of €15`,00,000 and an economic life of 5 years. The project will be depreciated on a straight-line basis over its life with no salvage value. The applicable tax rate is 30°/o and the firm's cost of capital is 12%. Based on market assessment, management has identified three possible demand scenarios with the following expected annual revenues and operating costs (excluding depreciation : ScenarioOptimistic Probability Annual Revenue (0 Annual Operating Cost (0 Most Likely 0.50 8,00,000 4,50,000i i) ii) Compute the expected annual after-tax cash flow using scenario analysis. Calculate the Expected Net Present Value (ENPV) of the project. iii) Based on the ENPV and variability of outcomes, comment on the risk of the project and state whether the project should be accepted. In the context of project appraisal, critically compare the different investment evaluation techniques. Discuss how these techniques are applied in practice. •(6 Marks) a) A company is considering the implementation of a new project that requires an initial investment of €18,00,000. The project is expected to generate the following after-tax cash inflows, over its life of 5years: Year Cash Inflows ({) Additional information: Cost of capital (discount rate) = 12% Reinvestment rate for MIRR = 12% Calculate: • Assume cash inflows occur at the end of each year. Ignore salvage value 1) The Net Present Value (NPV) of the project ili) The Modified Internal Rate of Return (MIRR) The Profitability Index (PI) iv) Based on the above results, comment on the acceptability of the project. b) A manufacturing firm plans to set up a new automated production unit to improve fficiency and reduce costs. The proposed project involves selection of technology letermination of plant capacity, choice of location, availability of skilled manpower, an‹ reliability of power and raw material supply. Management must assess whether the technical aspects of the project are suitable before proceeding further. Discuss the key elements of technical appraisal that should be evaluated for this project and explain their importance in ensuring project feasibility. A state government plans to implement a large-scale urban solid waste management project through a public-private partnership. The project aims to reduce landfill usage, generate energy from waste, and improve public health outcomes. While the financial returns appear modest, the project is expected to create employment, reduce pollution, and improve living conditions in surrounding communities. Concerns have been raised regarding the displacement of informal waste pickers and long-term environmental impacts. i) Explain the rationale for using Social Cost Benefit Analysis (SCBA) for evaluating this project instead of relying solely on financial appraisal.