Birla Institute of Technology & Science, Pilani

Distance Learning Programmes Division

First Semester 2007-2008
Comprehensive Examination (EC-2 Regular)
Course No.
Course Title
Nature of Exam
Weightage
Duration
Date of Exam
Note:
1.
2.
3.
4.

: ET ZC414
: PROJECT APPRAISAL
: Open Book
: 60%
: 3 Hours
: 30/09/2007 (FN)

No. of Pages
=3
No. of Questions = 12

Please follow all the Instructions to Candidates given on the cover page of the answer book.
All parts of a question should be answered consecutively. Each answer should start from a fresh page.
Mobile phones and computers of any kind should not be brought inside the examination hall.
Use of any unfair means will result in severe disciplinary action.

Q.1

Enumerate the reasons behind Conglomerate diversification by the Tobacco products giant ITC
limited in India.
[5]

Q.2

Explain the reasons behind positive NPV in large scale cement manufacturing industry in India.

Q.3

A state electricity board, believes that the amount of electricity usage in its service area during the
summer follows a linear trend. The following table gives the electricity used in the region on various
days.
Construct a linear causal model that expresses electricity usage as a function of time.
Forecast the electricity usage on day 12.
What are the limitations of your forecast?
Day
Electricity Used
(MW)

1
82

2
86

3
90

4
88

5
92

6
92

7
94

8
90

9
96

[5]

10
98
[5]

Q.4

Suppose the known investment cost for 5000 kg capacity for the manufacture of Auromine-O is Rs 2
lakhs. What will be the investment cost for 50,000 kg capacity if the capacity cost factor is 0.9? What
is the implication of this capacity cost factor falling to zero or rising to 1 in terms of economies of
scale?
[5]

Q.5

A 25 year annuity payment of Rs 500 per year offers Rs. 27,500 on maturity. Calculate the discount
rate.
[5]

Q.6

Django Entertainment company Ltd. considers the following financing mix as optimal.
Debt : 20%
Preference Stock : 25%
Equity : 55%
Debt can be sold at the rate of 10%
Preference stock dividend: 12%
Current market price of Equity Share: Rs 50
Last year dividend= Rs. 3
Calculate the weighted average cost of capital (WACC) for the firm.

[5]

ET ZC414 (EC-2 REGULAR)

Q.7

1000
200
300
100
50
600
250
400
80
220
100
200
50
100
450

Southwest products company is considering two mutually exclusive investments. The projects
expected net cash flows are as follows:
Expected Net Cash Flow (Rs)
Year
Project A
Project B
0
-300
-405
1
-387
134
2
-193
134
3
-100
134
4
600
134
5
600
134
6
850
134
7
-180
0
Which project should be chosen based on:
a. NPV criterion
b. IRR criterion

Q.9

PAGE 2

From the following information construct a simple Profit and Loss account.(all figures in thousands of
rupees)
[5]
Sales
Finished Goods
Long term Debt
Raw materials
Cash
Cost of Goods sold
Accounts receivable
Plant and Equipment
Interest Expense
Earnings before tax
Taxes
Accounts payable
Other current Liabilities
Other Expenses
Equity

Q.8

FIRST SEMESTER 2007-2008

[5]

IDBI has received an application for term loan for a computer chip manufacturing project. The
consolidated data is
(Figures in Rs.)
Initial investment cost (including land worth Rs20 crores)
100 cr
Output (10 lakh units @ Rs. 1000 per unit international price)
100 cr
Imported raw material
25 cr
Annual cost of Domestically procured non tradable inputs
40 cr
Annual cost of Domestically procured tradable inputs
15 cr
Exchange rate $1 = Rs. 45
Should IDBI finance the project? Justify your answer.
[5]

ET ZC414 (EC-2 REGULAR)

FIRST SEMESTER 2007-2008

PAGE 3

Q.10 Compare the advantages and disadvantages of term loan vs equity for financing a new project by an
existing company.
[5]
Q.11 A building project was started on 15th January, 2007 and was expected to be completed by 15th July,
2007. The project was being reviewed on 15th April, 2007. The following information is available:

RS in Lakhs
90
82.5
87
150
75

Budgeted cost for work scheduled(BCWS)

Budgeted cost for work performed(BCWP)
Actual cost of work performed(ACWP)
Budgeted cost for total work(BCTW)
Additional cost for completion(ACC)
Determine the following:
I. Cost variance
II. Schedule variance in cost terms
III. Cost performance index
IV. Schedule performance index
V. Estimated cost performance index

[5]

Q.12 Django Apperals Ltd had set up a project 5 years ago. The project has a remaining life of 5 years. The
cash flow forecast for the balance life is as follows:
year
Cash flow forecast
(Rs in crores)

1
30

2
35

3
45

4
50

5
30

6
25

The salvage value of the project if terminated immediately is Rs 120 crores. A third party has offered
to buy the project for Rs 175 crores. The discount rate is 10%. Should Django except the offer? [5]
********