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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:2014
QUESTION ONE (30 MARKS)
a. Explain the term project and state the need for project appraisal (7 Marks) b. Explain the following facets of project analysis: i. Technical analysis (6 Marks) ii. Financial analysis (6 Marks) c. outline the steps in cost benefit analysis methodology (7 Marks) d. differentiate between financial analysis and economic analysis (4 Marks)
QUESTION TWO (20 MARKS)
a. Differentiate between risk and uncertainty in relation to investment decisions (4 Marks) b. A project has the following cash flows: Year 1 Year 2 Cash flow probability cash flow probability 60,000 0.3 50,000 0.3 60,000 0.5 70,000 0.2
80,000 0.4 60,000 0.2 80,000 0.5 100.000 0.2
100,000 0.3 80,000 0.3
2
100,000 0.5 120,000 0.2 The projects initial cash outlay issh.100, 000. With a cost of capital of 12%. Required: The projects NPV (12 Marks)
Explain the following terms:
i. Shadow prices ii. Traded goods (2 Marks)
QUESTION THREE (20 MARKS)
a. The following infuriation relates to an extract of the balance sheet of Jua kali Ltd as at 31 December 2005.
Capital and liability sh.(000)
Ordinary share capital 1 milion
Ordinary shares of sh. 10 each 10,000
Capital reserves 20,000
Revenue reserves 90,000
10% debentures 30,000
150,000
Additional information:
1. The profit before interest and time for the year ended 31 December 2005 was sh. 9,000,000 2. The dividend payout ratio for the year 2005 was 40% 3. The market price per share as at 31 December 2005 was sh.36 4. The corporation tone rate is 30%
Required:
i. Gearing ratio (2 Marks) ii. Dividend yield ratio (2 Marks) iii. Times interest earned ratio (2 Marks) iv. Return on capital employed (2 Marks) v. Return on equity (2 Marks) vi. Price earnings ratio (2 Marks) b. Explain why canton must be taken when using financial ratios (4 Marks) c. Determine the NPV of a project whose cost is sh. 10,000 and useful life of five years. The project promises profit before depreciation and tax of sh.4, 000 per
3
annum. Deprecation is on straight line basis and the corporate rate is 30%. Should the project be undertaken? (4 Marks)
QUESTION FOUR (20 MARKS)
a. It was estimated that the cost of distribution service account for 40% for the unit price. Maize is an exportable commodity whose average international price over the period corresponding to the life of the project was estimated at sh.100.
Required:
Determine the shadow price of maize (4 Marks)
b. The following is an extract of the financial statements of Ujenzi Ltd for 2005 and 2006.
Balance sheet as at 30 June 2006.
2005 2006
Sh.(000) SH.(000)
Non -current assets 72,500 75,000
Current assets:
Inventory 24,500 26,500
Receivables 34,000 36,500
Cash at bank 1,250 2,250
59,750 65,250
Total assets 132,250 140,250
Profit and loss account for the year ended 30 June 2006
SH. (000)
Sales revenue 195,000
Profit from operations 13,750
Interest cost (2,150)
Profit before taxation 11,600
Income tax expense (2,950)
Profit after tax 8,650
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Dividends (2,150)
Net profit for the period 6,500
Additional information:
i. Depreciation charge for the year wash.6,000,000 ii. Non-current assets disposed in the year at sh. 300,000 had an accumulated depreciation of sh. 175,000 and had a cost of sh. 500,000.
Required:
A statement of cash flows for the year ended 30 June 2006 (16 Marks)
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