Project Appraisal

Subject Code: PPA1C

Paper: PROJECT APPRAISAL

Specific Instructions:
 Answer all the four questions.
 Marks allotted 100. Each Question carries equal marks.
 Word limit is 200 - 300words General Instructions:
 The Student should submit this assignment in the handwritten form (not in the typed format)
 The Student should submit this assignment within the time specified by the exam dept
 Each Question mentioned in this assignment should be answered within the word limit specified
 The student should only use the Rule sheet papers for answering the questions.
 The student should attach this assignment paper with the answered papers.
 Failure to comply with the above Five instructions would lead to rejection of assignment. _____________________________________________________

Question No 1

A choice is to be made between two competing projects which requires an equal investment of Rs 50,000 and are expected to generate net cash flow as under:

Project 1 Project 2
End of year 1 Rs.50,000 Rs.20,000
End of year 2 Rs.30,000 Rs.24,000
End of year 3 Rs.20,000 Rs.36,000
End of year 4 Nil Rs.50,000
End of year 5 Rs.24,000 Rs.16,000
End of year 6 Rs.12,000 Rs.8,000

The cost of capital of the company is 10% .The following are the Present Value Factors @ 10% per annum:

Year P.V .Factors @10% p.a
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
6 0.564

Which project proposal should be chosen and why? Evaluate the project proposals as under:
• Discounted Cash Flow.
• Pay back period methods, pointing out their relative merits and demerits.
• Under what circumstances is the pay back period method and the NPV Method used for evaluating projects.

Question No 2

(A) What is the rationale for NPV Method? Discuss the feature of NPV Method?

(B) Teja international is determining the cash flow for a project involving replacement of an old machine by a new machine. The old machine bought a few years ago has a book