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E - CONSTRUCTION ENGINEERING&MANAGEMENT
14CMT14 - PROJECT FORMULATION AND APPRAISAL
16 MARKS
1. What do you understand by detailed project report and explain it in detail?
2. Discuss the suggestions helped in scouting for project ideas
3. What factors have a bearing on choice of technology? Explain.
4. Describe the general sources of secondary information available for a project
a. What are the types materials and inputs ?
b. What questions would you raise in assessing whether the material requirements of the
project would be reasonably met?
5. What are the components of cost of a project? Discuss them in detail(T2)
a) What points should be kept in mind while estimating the working capital
requirements and planning for financing?(T2)
Discuss in detail the major components of cost of production(T2)
Discuss the items that are considered in estimating the working results(T1)
What key issues would you examine in the preliminary screening and explain them(T1)
Explain PFR and its clearance(T2)
Discuss about the environmental pollution control clearances required(T1)
Describe with a case study the forest clearance required for a project(T1)
Explain the qualities and traits required to be a successful entrepreneur(T1)
Describe all the methods available for demand forecasting (T1)
Describe the important project charts and layouts(TD2)
a) Discuss the contents of a balance sheet(T1)
b) What are the items found in a cash flow statement?(T2)
Write in detail about the estimates and techno-economic feasibility report(T1)
a) Describe the project identification process(T1)
b) What are the important aspects to be considered under corporate appraisal?(T1)
19. Discuss the sources of positive NPV(T2)
20. Discuss the processes involved in sample survey(T1)
21. Explain any two of the technical analysis methods(T1)
22. Explain the process of identification of equipment & machinery for a
manufacturing industry(T1)
23. Discuss the importance of considering alternative ways of transforming an idea in
to a project (T1)
24. What is break-even point? How it is calculated for a new project? Explain(D,T&F1)
With a flow diagram explain project life cycle and different stages of a project(TD1)
4. Describe the components of the cash flow stream of a project.
(OR)
5. How would you measure the cost of debt capital and cost of preference capital? Illustrate
with your own example.
8. "Private sectors play a major role in Infrastructure Development Project". Do you agree?
Discuss.
(OR)
9. Describe the scope of Technology Transfer.
1. Trace the role played by industrial sectors in project and sectoral development.
2. Describe the types of project.
3. State the steps involved in project report preparation.
4. Discuss the priority and evaluation of international competitiveness in Project Appraisal.
5. Mention the scouting land screening of project ideas of Project Identification.
6. Explain the economic analysis of Project Appraisal.
7. Discuss the components of feasibility studies.
8. How to prepare feasibility report?
PART B — (4 ? 15 = 60 marks)
Answer any FOUR questions.
16 MARKS
1. Discuss the basic principles for measuring the project cash flows(T2)
2. Mention the importance of time value of money and discuss the various methods of finding time
value of money(T3)
3. State and comment upon the various misconceptions about the cost of capital concept(T1)
4. For evaluating a project the following information is available:
Total outlay of the project is Rs. 450 million. This consists of Rs.250million
of FA and Rs.200 million of CA
Equity – Rs.100 million, Term loans – Rs. 200 million,
WC advance – Rs. 100 million and Trade credit – Rs. 50 million
Term loan is repayable in 10 equal semi annual installments of Rs. 20 million
each. The first installment will fall due after 18 months. Rate of interest on term
loan will be 15%
The levels of WC advance and trade credit will remain at Rs. 100 million and
Rs. 50 million rest till they are paid back or retired at the end of 6 years. The WC
advance will carry an interest rate of 18%
Revenues will be Rs. 500 million / year. OC are Rs.320 million / year .
Depreciation rate on FA IS 33 1/3%
NSV of FA & CA at the end of 6 years will be Rs. 80 million and Rs 200 million
respectively. Tax rate – 50%
Define the cash flow from the equity funds point of view (C3)
5. a) Explain time horizon for cash flow analysis.(T2)
b) What are the steps involved in defining cash flow from total funds point of view(T1)
6. Bionics Ltd., invests in a project with the following informations :
Total outlay – Rs.25 million ( Plant and Equipment – Rs 16 million and gross WC – Rs. 9 million)
Project is financed with an equity of Rs. 7 million , Long term debt of Rs. 11 million, WC advance
of Rs.5 million , Trade credit of Rs. 2 million .
Interest rate on debentures – 15%, Interest rate on WC – 17%
Life of the project – 6 years
NSV – Rs . 6 million , WC is liquidated at its par value
Revenues – Rs 20 million / year, Increase in OC – Rs. 9 million / year
Tax rate – 50% , Rate of depreciation – 331/3%
Determine the cash flow from long term funds point of view(C3)
7. Explain the importance of time value of money with numerical examples for the methods to
determine it(T2)
8. At the time of his retirement Mr. X is given a choice between 2 alternatives (i) an annual pension
of Rs. 10,000 as long as he lives (ii) a lump sum amount of
Rs. 50,000. If he expects to live for 15 years and interest rate is 15% which option
appears to be more attractive. Explain(C1)
9. a) Mr. Vinay plans to send his son for higher studies abroad after 10 years. He expects the cost of
studies to be Rs. 1,00,000. How much should he save annually to have a sum of Rs. 1,00,000 at
the end of 10 years, if the rate of interest s 12% (C1)
b) A finance company offers to give Rs. 8,000 after 12 years in return for Rs.1000 deposited
today, using Rule of 69 find out the approximate interest offered (C1)
10. What is the difference between the effective rate of interest and nominal rate of
interest in the following cases.(C1)
Case A : Nominal ROT is 12% and frequency of compounding is twice a year
Case B : Nominal ROT is 12% and frequency of compounding is 6 times a year
Case C : Nominal ROT is 24% and frequency of compounding is 4 times a year
Case D : Nominal ROT is 24% and frequency of compounding is 12 times a year
11. a) South India Corporation has to retire Rs.1 crore of debentures each at the end of 8,9 and 10
years from now. How much should the firm deposit in a sinking fund account annually for 5 years
in order to meet the debenture requirement needed? The net interest rate earned is 8%(C1)
b) You have a choice between getting Rs. 5,000 now and Rs. 20,000 after 10 years. Which would
you choose? Explain with reasons (C1)
13. a)Define weighted average cost of capital and illustrate with an example (T1)
b) Explain the procedure to work out weighted marginal cost of capital schedule(T2)
14. What are the different approaches for finding the rate of return form various sources
of financing?(T2)
15. From the facts given below calculate the cost of retained earnings
The company has net earning amounting to Rs. 50,000. If the retained earnings are distributed to the
share holders can be invested by them in securities carrying a return of 10% per annum. The share
holders of the company are in the 30% tax bracket. Share holders will have to incur 2% brokerage cost
for making new investments(C3)
16. a) Explain preference capital(T1)
b) Himmat Ltd., issues Rs. 100 face value preference shares carrying 14% dividend which are
repayable at par after 12 years. The net amount realized per share is Rs.92. What is the cost of
preference capital?(C1)
17. a) Vaneta enterprises issues Rs. 100 face value preference stock which carries 2% dividend and
redeemable after 12 years at par. The net amount realized per preference stock is Rs. 95. What is the
cost of preference capital?(C1)
b) Mysore manufacturing company issues Rs. 100 face value debentures carrying interest of 15%.
The debentures are repayable in 3 annual installments of Rs. 30, Rs. 30 and Rs.40 at the end of 7,8,9
years respectively. The interest of course is payable only on the outstanding amount. The issue cost is
3% , the tax rate is 60% . What is the cost of debenture capital to the company?(C2)
18. Describe the rules applicable to the measurement of costs& returns as given in the manual for
preparation of reports developed by the planning commission(T2)
19. Discuss the possible sources of optimistic bias as well as pessimistic bias in cash flow
estimation(T2)
16 MARKS
Year 0 1 2 3 4
Which of these two proposals should be selected? Use DCF and NPVI methods. Assume
the cost of capital of 8% comment on the selection criteria of the proposals (C2)
3. ABC Construction Company has determined the following discrete probability distributions for
net cash flows generated by a contemplated project. Assume the probability distributions for
future cash flows to be the independent. Also assume that the discount rate is 4% if the proposal
will require an initial out lay of Rs 5000 Determine the expected value of NPV and SD of the
expected value. (C2)
Period 1 Period 2 Period 3
Probability Cash flow Probability Cash flow Probability Cash flow
(RS) (RS) (RS)
0.1 1000 0.20 1000 0.3 1000
0.2 2000 0.30 2000 0.4 2000
0.3 3000 0.40 3000 0.2 3000
0.4 4000 0.10 4000 0.1 4000
4. YYY construction company is considering tow mutually exclusive investment projects A and
project B The expected cash flow of these project are as follows :
Year 0 1 2 3 4 5
5. An all equity firm is evaluating the following project the risk free is 11% and the expected
market risk premium is 6% the firm’s cost of capital is16%
Project A B C D E
Expected 15 16 21 22 23
return (%)
(i) Which project is accepted
(ii) If the firm cost of capital is used as hurdle rate which project will be accepted or rejected
incorrectly?(C3)
6. Calculate NPV of the two project X and Y with reinvestment rate 14% and 20% using the
following data
project X (Rs) project Y(Rs)
Investment out lay 110000 110000
Cash flow I year 31000 71000
II year 40000 40000
III year 50000 40000
IV year 70000 20000
Year 0 1 2 3 4 5
16 MARKS
1. Explain in detail the various forms of TT(T1)
2. What are the factors considered in the choice of technology and explain the phases of TT?(T1)
3. Write short notes on: (T1)
Ecological analysis
ARR
International practice of Project appraisal
Risk analysis
4. Write short notes on (T1)
Technology transfer
EIA
Payback period
Economic analysis
5. Write short notes on (T1)
Financial institutions
Decision tree analysis
BOT and BOLT projects
Cost of Capital
6. “Infrastructures are the backbone of a country”. Discuss with Indian context (T2)
7. Discuss the recent Highway projects in India. Also mention the role of private participation in
these projects.(T2)
8. Discuss the ongoing Infrastructure projects in India. Also mention the role of private
participation in these projects (T2)
9. Foreign collaboration would mean Technical and Financial participation. What steps would you
take to invite FC for your project?(T2)
10. Enumerate the Advantages and Limitations of the private participation in Infrastructure projects
in India and Illustrate the importance and need of Collaborative projects for the national
development(T2)