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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 term project and state the significance of project appraisal. (4 marks) b) Explain how the cost and benefits of the society differs from that of the private enterprises. (5 marks) c) Outline the checklist of items that need to be considered during the technical analysis . (6 marks) d) Explain the key steps in cost-benefit analysis. (5 marks) e) What are the differences between financial and economic appraisals. (10 marks)
QUESTION TWO (10 MARKS)
a) Write short notes on the following: a. Shadow prices. (2½ marks) b. Traded goods (2½ marks) c. Border prices (2 marks) b) KTDA is expected to increase the production of tea in Kenya which is a Traded good. The cost of distribution service was estimated to account For 15% of the unit price, if the average International price was estimated To be Kshs.100. Determine the shadow price? (1½ mark)
c) Suppose the tea in the country was to be picked by domestic skilled Labour. The market wage rate is estimated to be Kshs.500 per person Per hour. Taking coversion factor (standard) to be 2.5, determine the
2
Shadow wage rate. (1½ mark)
QUESTION THREE(20 MARKS)
a) Explain various ways of incorporating the premium on foreign exchange in Economic analysis. (5 marks) b) Explain the adjustments that are necessary to convert financial prices to economic values. (5 marks) c) A company is considering replacement of its existing machine by a new one for its project. The new machine is expected to cost Kshs.1,400,000/=. The transportation costs equal Kshs.50,000 while installation costs are Kshs.150,000/=. The cost of a trial run was estimated to Kshs.20,000. The new machine will have a useful life of 5 years and will yield earnings before interest and taxes of Kshs.1,500,000/= over its useful life. The estimated salvage value of new machine is Kshs.100,000/=. The company pays a tax at 40% and uses a straight line method of depreciation. The company’s opportunity cost of capital is 20%. Required: Advice on whether the firm should replace the machine using: i) NPV criteria (4 marks) ii) IVV criteria (4 marks)
QUESTION FOUR (20 MARKS)
Tumaini Company’s condensed financial statements to provide the following information:
BALANCE SHEET
31 Dec 2006 31 Dec 2005
Cash 52,000 60,000
Account receivable (net) 198,000 80,000
Marketable securities (short term) 80,000 40,000
Inventories 440,000 360,000
Prepaid expenses 3,000 7,000
Total current assets 773,000 547,000
Property, plants and equipments (net) 857,000 853,000
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Total assets 1,630,000 1,400,000
Current Liabilities 240,000 160,000
Bonds payable 400,000 400,000
Common stock equity 990,000 840,000
Total Liabilities & stockholders equity 1,630,000 1,400,000
======== ======== Income statement for the year ended 31st December 2006:
Sales 1,640,000
Cost of goods sold 800,000
Gross profit 840,000
Selling & Administration expenses (440,000)
Interest expenses (40,000)
Net income 360,000
Required:
a) Determine i) Current ratio (1½ mark) ii) Acid test ratio (1½ mark) iii) Inventory turnover (1½ mark) iv) Rate of return on assets (1½ mark) v) Rate of returns on common stock equity (1½ mark) b) Prepare a brief evaluation of the financial conditions of the company and adequity of its profit (4½ marks)
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