PROJECT APPRAISAL AND RISK
Q1. Cause & Uncertainty is an considerable part to be considered anteriorly any schemes bombardment appraisal. Select the embezzle liberty which relates to either Cause or Uncertainty. (HA)It is Quantifiable RISK UNCERTAINTYIncreases as the schemes estate increases RISK UNCERTAINTYIt is perplexing to advance probabilities RISK UNCERTAINTYIncreases as the variability of income increases RISK UNCERTAINTY(2 marks)
Q2. Cipher Co. plans to buy a new muniment which procure quantity expected sales of 110,000 parts per year. Each part can be sold for $15 per part. The scheme is expected to conclusive for five years. The scheme NPV is $1780. The union acquisition tax one year in nonpayment at an annual blame of 30% per year. Calculate the sensitivity of the new muniment to a exexfluctuate in selling worth using the consume of important of 11%.4%4.4%4.7%5%(2 marks)
Q3. Calculate the sensitivity of selling worth? The behindcited counsel to be used:Investment in Year 0 $30,000, Sales bulk 200 parts per annum each consumeing $200, Shifting consume $50/part & Completion Unroving consume $6000 per annum. The scheme estate is priced to be three years behind a while the consume of important of 10%. (MCQ)30.5%29.8%25%15%(2 marks)
Q4. Select the embezzle ability & weaknesses for sensitivity anatomy according to the statements. (HA)It identifies discriminating areas for the good-fortune of the scheme STRENGTH WEAKNESSIt provides counsel which allows skillful-treatment to fashion intellectual intellects STRENGTH WEAKNESSIt is not an optimizing technique STRENGTH WEAKNESSIt assumes that exchanges to shiftings can be made inconsequently STRENGTH WEAKNESS(2 marks)
Q5. Calculate the sensitivity of gift? The behindcited counsel to be used:Investment in Year 0 $60,000, Sales bulk 600 parts per annum each consumeing $125, Shifting consume $10/part & Completion Unroving consume $4000 per annum, the Tax blame is 20% procure barely be mismisappropriate on taxable coin progresss & important allowances are to be ignored. The scheme estate is priced to be two years behind a while the consume of important of 8%. (MCQ)45.4%41.8%33.2%30.6%(2 marks)
Q6. Dmitri is contemplating purchasing a muniment for $275,000 which he procure use to quantity 50,000 parts per year for five years. These products selling worth is $10/part and shifting consumes are expected to be $6/unit. Incremental unroving consumes procure be $70,000 completion year for arrangeation & $25,000 completion year for selling and division. Petra has a required blame of repay of 10% per annum. By how sundry parts must the price of arrangeation and sale bulk lapse for the scheme to be treasured as not worthwhile? (MCQ)2,8756,4658,11512,315(2 marks)
Q7. Zulu Co. is because to endow in a scheme consumeing $20,000, the quantity is payable at the begin of the leading year of exercise. The priced advenient coin progresss & its probabilities are absorbed below: Year 1 The give appreciate of coin progress ($) Probabilities17,500 0.7211,700 0.2(5,000) 0.08Year 2The give appreciate of coin progress ($) Probabilities23,000 0.65(3,500) 0.35Calculate the completion expected appreciate? (MCQ) $23,700$14,540$13,725$8,265(2 marks)
Q8. An idiosyncratic uses expected appreciate on the presumption to (MCQ)Reduce cause for a absorbed equalize of repayMaximize repay for a absorbed equalize of causeReduce cause irrespective of the equalize of repayMaximize repay irrespective of the equalize of cause(2 marks)
Q9. Which of the behindcited TWO are disadvantages of Expected appreciate? (MRQ)Relatively unartificial anticipationIgnores variability of payoffsDeals behind a while multiple outcomesThe exculpation is barely a long-run mean (2 marks)
Q10. "Using matter-of-fact patterns, it quantitys a division of the potential outcomes from the scheme using multiple fluctuating shiftings." Choose the embezzle Technique. (MCQ)SimulationRisk-adjusted remittance blamesAdjusted paybackExpected appreciate(2 marks)
PROJECT APPRAISAL AND RISK (ANSWERS)
Q1. It is Quantifiable RISK Increases as the schemes estate increases UNCERTAINTYIt is perplexing to advance probabilities UNCERTAINTYIncreases as the variability of income increases RISK
Q2. ASelling Worth = 110,000 × $15 = $165, 0000Annuity Constituent 11% (1 – 5 years) = 3.696Annuity Constituent 11% (1 – 6 years) = 4.231Discount Constituent 11% (Year 1) = 0.901Annuity Constituent 11% (2 – 6 years) = 4.231 – 0.901 = 3.33Year 1-5 Tax blame Year 2-6 Coin progress 1650,000 × 30% 495,000 × × Annuity 3.696 3.33 Selling Worth behind tax 6098,400 - 164,8350 445,0050Sensitivity = (1,780 ÷ 445, 50050) × 100 = 4%
Q3. Years Coin progress ($) Remittance Constituent (10%) Give appreciate ($)Investment 0 (30,000) 1 (30,000)Sales Revenue 1-3 40,000 2.487 99,480Variable Consume 1-3 (10,000) 2.487 (24,870)Fixed Consume 1-3 (6,000) 2.487 (14,922)NPV 29,688Selling Worth = (29,688 ÷ 99,480) × 100 = 29.8%
Q4. It identifies discriminating areas for the good-fortune of the scheme STRENGTH It provides counsel which allows skillful-treatment to fashion intellectual intellects STRENGTH It is not an optimizing technique WEAKNESSIt assumes that exchanges to shiftings can be made inconsequently WEAKNESSInformation procure be giveed to skillful-treatment in a arrange which facilitates intellectual intellect to career the likeness of the diversified potential outcomes considered.It is not an optimizing technique. It does not subject-matter straightway to the emend resolution.It assumes that exchanges to shiftings can be made inconsequently, e.g. raw symbolical consumes procure exexfluctuate inconsequently of other shiftings. This is extremely incredible.
Q5. CYears Coin progress ($) Remittance Constituent (8%) Give appreciate ($) Behind Tax Give appreciate ($) Bombardment 0 (60,000) 1 (60,000) (60,000)Sales Revenue 1-2 75,000 1.783 133,725 106,980Variable Consume 1-2 (6,000) 1.783 (10,698) (8,558)Fixed Consume 1-2 (4,000) 1.783 (7,132) (5,706)NPV 55,895 32,716Contribution = (32,716 ÷ [106,980 - 8,558]) × 100 = 33.2%
Q6. CYear Coin progress ($) Remittance constituent (10%) Give Appreciate ($)Machine 0 (275,000) 1 (275,000)Contribution 1-5 200,000 3.791 758,200Fixed consume 1-5 (95,000) 3.791 (360,145)NPV 123,055PV of gift must lapse by $123,055 Sales bulk must lapse by $123,055 ÷ 758,200 = 16.23% Lapse in sales bulk = 0.1623 × 50,000 = 8,115
Q7. DYear 1 Give appreciate of coin progress ($) Probabilities Expected appreciate ($)17,500 0.72 12,60011,700 0.2 2,340(5,000) 0.08 (400)14,540Year 2The give appreciate of coin progress ($) Probabilities Expected appreciate ($)23,000 0.65 14,950(3,500) 0.35 (1,225)13,725(14,540 + 13,725) – 20,000 = 8,265
Q8. DThe Expected Appreciate is the weighted mean of all the potential outcomes, behind a while the weightings based on the chance prices. This is specifically used to maximize the shareholder's opulence esoteric of any cause presumptions.
Q9.Relatively unartificial anticipation (Advantage)Ignores variability of payoffs (Disadvantage)Deals behind a while multiple outcomes (Advantage)The exculpation is barely a long-run mean (Disadvantage)
Q10. AThe pretence uses a matter-of-fact pattern, it quantitys a division of the potential outcomes from the scheme using multiple fluctuating shiftings.