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Hbc2202:Project Appraissal Question Paper

Hbc2202:Project Appraissal

Course:Bachelor Of Commerce

Institution: Meru University Of Science And Technology question papers

Exam Year:2012

QUESTION ONE (30 MARKS)
a) Explain the meaning and significance of the term project appraisal. (3 Marks) b) Discuss the key steps involved in cost-benefit analysis (7 Marks) c) Describe four facets of project analysis, clearly detailing the importance of each. (8 Marks) d) Explain the difference between risk and uncertainty in relation to project investment decision. (4 Marks) e) Explain various ways of incorporating the premium on foreign exchange in economic analysis. (3 Marks)
QUESTION TWO (20 MARKS) a) Explain the following terms as used in project analysis;
(i) Shadow price (1 Mark)
(ii) Border prices (1 Mark)
(iii) Traded books (1 Mark)
b) The following positions statement was extracted from the books of Lind Ltd as at 1.12.2010
2
Assets: Sh
Non current assets 9000 Net current assets 600
Sh. Equity and liabilities; Ordinary share capital of 100 000 shares at sh10 each 1000 Capital reserve 2000 Revenue reserve 9000 10% debentures 3000 15000 Additional information
1. Profit before interest and tax for the year was sh. 1200000 2. Dividend payout ratio for the year was 30% 3. Market price per share as at 31.12.10 was sh. 40 4. The corporation tax rate is 30%
Required:
(i) Gearing ratio (2 Marks) (ii) Dividend yield ratio (3Marks) (iii) Interest coverage ratio (2 marks) (iv) Price earnings ratio (3 Marks) (v) Return on capital employed (2 Marks)
c) Explain the significance of the ratios computed above. (5 Marks)
QUESTION THREE (20 MARKS)
a) Under which circumstances does Net Present Value technique conflict with Internal Rate of Return techniques in project appraisal? (4 Marks)
b) Explain the relevance of sensitivity analysis in project appraisal (6 Marks)
c) MEWAS Ltd provided the following details relating to a certain project:
Year 1 Probability Year2 Probability Cashflows Cashflows ‘sh000’ ‘Sh.000’ 6000 .3 5000 .3 6000 .4 7000 .3
3
8000 .4. 6000 .2 8000 .5 10000 .3 10000 .3 8000 .3 10000 .5 12000 .2
The project’s initial sis h. 1000,000, to be discounted at 12% p.a
Required: Compute the project’s NPV and advise the company. (10 Marks)
QUESTION FOUR (20 MARKS) a) Why is it important to prepare a statement of cashflows for a firm? (3 Marks) b) The following final accounts were extracted from the books of Kambakia Ltd.
Profit and loss statement for the year ended 31.12.11 Shs. ‘000’ Net profit before tax 2600 Less: Tax (850) 1750 Less: Dividends (900) Retained profit for the year 850 Retained profit b/f 45 Retained profit c/f 895
Statements of financial position: 31.12.11 31.12.2010 Sh.000 sh.000 Non current Assets at cost 11700 10100 Less: Depreciation 4200 3810 7500 6290
Current Assets Stocks 1270 1330 Debtors 780 660 Bank 110 -
Less: Current Liabilities Creditors (635 (372) Taxation (1200) (1060)
4
Bank - (33) Dividends (900) (870) 6925 5745 Financed by: Ordinary share capital 800 100 Share premium 130 - Preference share capital 3000 3000 Retained profits 895 45 Debentures 2100 2600 6925 5745 During the year, the company sold fixed assets which had cost sh.200,000 and had a written down value of sh. 50,000 for sh. 70,000.
Required:
Prepare a statement of cashflows. (14 Marks)

Hbc2202:Project Appraissal Question Paper

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