Project Evaluation

( a )Norton Ltd. manufactures steel rods and is now considering to purchase a new aluminum smelting plant. This initial cost of the plant is ₹ 20,00,000. It has a useful life of 5 years with a residual value of ₹ 1,00,000. Production and sales from the new plant are expected to be 1,00,000 units per year. Other estimates are as follows :

Fixed cost (including depreciation) is ₹ 8,00,000 per annum. Marketing and promotion cost not included in the above will be ₹ 1,00,000 and ₹ 1,60,000 for years 1 and 2, respectively. Additionally, investment in debtors and stocks will increase in year 1 by ₹ 1,50,000 and ₹ 2,00,000, respectively. Creditors will also increase by ₹ 1,00,000 in year 1. Thus, debtors, stocks and creditors will be recouped at the end of the fifth year.

The cost of capital is 18%. Corporate tax is 30% and is paid in the year in which profits are made. Depreciation is tax deductible. The company follows straight line method of depreciation. Assume working capital is invested at the start of the year.

Required :

(i)Estimate the net cash inflows after tax over the useful life of the project.

(ii)Calculate the Net Present Value and Profitability Index of the project.

(iii)Advise Norton Ltd. whether the plant should be purchased. Justify with reasoning.

The PV factors at 18% are :

A project has expected NPV of ₹ 1,83,000. Its coefficient of variation is 0.07377. Risk free rate is 8% and cost of capital is 10%. What is the standard deviation of project ?

(A)15,000

(B)12,000

(C)13,500

(D)13,334

Profitability index of Project ‘A’ is 1.20167 when its cash flow is discounted at 12%. Initial investment on project was ₹ 3,00,000. This project generates equal cash flow over the five years time. How much cash flow will be generated by the project each year ?

(A)₹ 80,000

(B)₹ 81,794

(C)₹ 1,00,000

(D)₹ 1,21,000

Which technique in capital budgeting is also described as “what to do when all else fail” technique?

(A)Simulation analysis

(B)Cash flow analysis

(C)Decision-tree analysis

(D)None of the above

The coefficient of variation of net present value measures the ..................

(A)Relative risk of the project

(B)Total risk of the project

(C)Highest expected value of net present value

(D)Market risk of the project

Which technique is used to determine that how varying assumptions will affect the measures of investment worth ?

(A)Cash Flow Analysis

(B)Probability Analysis

(C)Risk Adjusted Rate of Return

(D)Sensitivity Analysis

In case where capital availability is unlimited and the projects are not mutually exclusive, for the same cost of capital, following criterion is useful ?

(A)Profitability Index

(B)Net present value

(C)Internal Rate of Return

(D)Any of the above

Technical feasibility implies :

(A)To ensure, before taking in hand a project, whether or not the proposed project is profitable.

(B)Appraisal of project by a team of expert drawn from different disciplines.

(C)The availability and adequacy of the proposed plant and equipment to produce the product within the prescribed norms.

(D)Working plan for implementation of project proposal after investment decision by a company has been taken.

A machine is expected to require an initial outlay of ₹ 3,50,000 with useful life of four years, straight line method of depreciation and scrap value of ₹ 30,000. If it generates CFAT of ₹ 1,10,000, ₹ 1,50,000, ₹ 1,75,000 and ₹ 1,40,000 respectively through years 1 to 4 and cost of capital and applicable income tax rates are 10% and 30% respectively, the NPV of the project will be ₹ :

(A)93,486

(B)1,00,935

(C)84,500

(D)1,21,425

E Ltd. is considering an investment that will cost ₹ 80,000 and have a useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are ₹ 25,000 per year and for the last 2 years, they are ₹ 20,000 per year. What is the payback period for this investment ?

(A)4 years

(B)3.5 years

(C)3.2 years

(D)3 years

Payback period is primarily considered as the measure of project’s rather than its ........................... .....

(A)profitability, capital recovery

(B)profitability, liquidity

(C)capital recovery, profitability

(D)capital recovery, liquidity

Management is considering a ₹ 1,00,000 investments in a project with a 5 years life and no salvage value. If the total tax paid income from the project is expected to be ₹ 60,000 and recognition is given to effect of straight-line depreciation on the investment, the average rate of return (ARR) of the project is :

(A)12%

(B)24%

(C)60%

(D)30%

What is the internal rate of return for a project having cash flows of ₹ 40,000 per year for 10 years and a cost of ₹ 2,26,009 ?

(A)8%

(B)12%

(C)14%

(D)10%

Which of the following will not suggest for accepting of a project ?

(A)Net present value is greater than zero

(B)Internal Rate of Return is less than the cost of capital

(C)Profitability index is greater than unity

(D)All of the above

When operating under a single-period capital- rationing constraint, you may first want to try selecting projects by descending order of their ................... in order to give yourself the best chance to select the mix of projects that adds most to the firm value.

(A)Profitability Index (PI)

(B)Net Present Value (NPV)

(C)Internal Rate of Return (IRR)

(D)Payback Period (PBP)

Financial aspects of project is judged with reference to :

(A)Availability of land and site

(B)Availability of servicing facilities like machine shops, electric repair shop etc.

(C)NPV, Benefit Cost Ratio, Internal Rate of Return, Sensitivity and Risk Analysis

(D)Availability of work force as per required skill and arrangements proposed for training-in- plant and outside

A company is considering a project with initial outlay of ₹ 5,00,000. The project is expected to last for 5 years with salvage value of ₹ 78,000. It is expected to generate CFAT of ₹ 1,28,000 per annum during its life. If the cost of capital of the company is 12%, the approx. NPV of the project will be :

(A)₹ 5660 positive

(B)₹ 5660 negative

(C)Zero

(D)Cannot be determined

Assume that a firm has accurately calculated the net cash flows relating to an investment proposal. If the net present value of this proposal is greater than zero and the firm in not under the constraint of capital rationing, then the firm should :

(A)Calculate the IRR of this investment to be certain that the IRR is greater than the cost of capital

(B)Compare the profitability index of the investment to those of other possible investments

(C)Calculate the payback period to make certain that the initial cash outlay can be recovered within an appropriate period of time

(D)Accept the proposal, since the acceptance of value-creating investments should increase shareholder wealth

Which among the following is not true ?

(A)Capital budgeting is the process of evaluating and selecting long-term investments that are in line with the goal of investors’ wealth maximization

(B)The common traditional capital budgeting techniques are Payback Period and Accounting Rate of Return

(C)Modified Internal Rate of Return (MIRR) is the discount rate that equates the present value of the expected cash inflows with the initial cash outflow

(D)All the above statements are true

A project has net cash flows of ₹ 11,000 per annum for four years. The Initial cash outflow is ₹ 34,000. Which of the following statement is correct concerning the project’s internal rate of return (IRR) ?

(A)The IRR is less than 10%

(B)The IRR is greater than 10%, but less than 13%

(C)The IRR is greater than 13%, but less than 15%

(D)The IRR is greater than or equal to 15%

Y Ltd. is considering a project which requires initial investment of ₹ 20,000. Cost of capital is 10%. Estimated cash flows after tax are as follows :

What is the project’s discounted payback period ?

(A)3 years & 6.52 months

(B)4 years & 2.32 months

(C)3 years & 10.27 months

(D)4 years & 8.25 months

Which of the following is a modern technique of capital budgeting ?

(A)Accounting Rate of Return

(B)Internal Rate of Return

(C)Modified Internal Rate of Return

(D)Discounted Pay-back Period

Profitability index of Project ₹ is 1.50 when its cash flow is discounted at 12%. Initial investment on project was ₹ 1,44,200. This project generates equal cash flow over the five year’s time. How much cash flow will be generated by the project each year ?

(A)50,000

(B)60,000

(C)52,615

(D)71,220

A professional kitchen is attempting to choose between gas and electricity for its main heat source. Once a choice is made, the kitchen intends to keep to that source indefinitely. Each gas oven has a net present value (NPV) of ₹ 60,000 over its useful life of 5 years. Each electric oven has an NPV of ₹ 75,000 over its useful life of 7 years. The cost of capital is 8%. Which should the kitchen choose and why ?

(A)Gas because its average NPV per year is higher than electric

(B)Electric because its NPV is higher than gas

(C)Gas because its equivalent annual benefit is higher

(D)Electric because its equivalent annual benefit is higher

The following data is available for Project A whose initial investment is ₹ 80,000 and salvage value after 5 years are ₹ 4,500.

What is the NPV of Project A if the Ke of the company is 10% ? Ignore taxation.

(A)₹ 9,622

(B)₹ 6,827.5

(C)₹ 7,500

(D)₹ 8,500

Initial capital cost ₹ 100 crores, Annual unit sales 1.25 crores, Selling Price ₹ 100 per unit. Variable cost ₹ 50 per unit, Fixed Cost 12.50 crores per year, Cost of capital is 6%. What will be approx. % change in NPV for 5% reduction in Sale Price per unit considering duration of the project is 3 years ? Ignore taxation and depreciation and assume no interest cost.

(A)49.66%

(B)24.81%

(C)4.96%

(D)12.58%

In order to increase a given net present value from a given set of outflows and inflows, the discount rate should generally be :

(A)Increased

(B)Decreased

(C)Kept as it is

(D)None of the above is required

.............. is the most suitable method assessing projects in those circumstances where availability of resources is not a constraint.

(A)Pay Back Period method

(B)Net Present Value

(C)EVA Method

(D)MVA Method

A company is considering investing in a project that will cost ₹ 3 lakh, will last for 5 years with straight line method o f depreciation and salvage value of ₹ 20,000. Annual NPAT expected from project is ₹ 60,000. The pay-back period of the project will be :

(A)5 years

(B)2.59 years

(C)2.50 years

(D)Cannot be determined with given information

Point out the FALSE statement in relation to MIRR method :

(A)Under MIRR method, all cash inflows are assumed to be reinvested at reinvestment rate

(B)This method of calculation eliminates the problem of multiple IRR for projects with abnormal cash flows

(C)A project can simultaneously have positive NPV & MIRR lower than the cost of capital

(D)None of the above

A project under consideration is expected to require ₹ 9 lakh of initial investment. Its expected life is 5 years and it is expected to generate Cash flow after tax (CFAT) of ₹ 2,82,500 through years 1 to 5. If the cutoff rate for decision making is 12%, the Internal Rate of Return of the project will lie in the range of :

(A)12% - 13%

(B)11% - 12%

(C)16% - 17%

(D)23% - 24%

A firm is considering a project requiring ₹ 3,00,000 with 7 years life and ₹ 55,000 salvage value. The project is expected to generate net profit before depreciation and tax of ₹ 1,20,000 per annum. If straight line method of depreciation is to be followed and applicable income tax rate is 20%, the Average Rate of Return (ARR) of the project will be :

(A)27.75%

(B)47.88%

(C)38.31%

(D)22.66%

Two projects are under consideration with following details : Project A will require initial ou tlay of ₹ 60,000, will last for 5 years and will generate annual CFAT of ₹ 20,000. Project B will require initial outlay of ₹ 90,000, will last for 5 years and will generate annual CFAT of ₹ 29,000. If the cost of capital of the company is 10%, which of the following statements is true regarding these projects ?

(A)Project A is better on the basis of NPV criteria, whereas project B is better on IRR criteria

(B)Project B is better on the basis of NPV criteria, whereas project A is better on IRR criteria

(C)Both the projects are indifferent and acceptable similarly on NPV and IRR criteria

(D)Both the projects shall be rejected on NPV and IRR criteria

In Risk-Adjusted Discount Rate method, ........................ is adjusted.

(A)Cash Inflows

(B)Cash Outflows

(C)Project duration

(D)None of the above

Company A has an offer to invest in three projects – B, C and D. However, Company A has funds to invest in only one project. So, it decided to use the NPV method to decide on the project that it should invest in. Which project should the company invest in ? Following are the details : Project B – ₹ 56,000 (Initial Investment), Cash flows for year, 1, 2 and 3 resp. (₹ 25,000; ₹ 20,000; ₹ 15,000), Risk -free rate is 2%, while Risk premium is 5%. Project C – ₹ 68,000 (Initial Investment), Cash flows for year l, 2 and 3 resp. (₹ 32,000; ₹ 12,000; ₹ 35,000), Risk -free rate is 1.2%, while Risk premium is 4%. Project D – ₹ 85,000 (Initial Investment), Cash flows for year 1, 2 and 3 resp. (₹ 12,000; ₹ 30,000; ₹ 53,000), Risk -free rate is 3%, while Risk premium is 7%.

(A)Project B

(B)Project C

(C)Project D

(D)None of the above

Which one of the following statements is TRUE ?

(A)IRR method can tend to understate the relative attractiveness of superior investment projects when the opportunity cost of cash flows is below the IRR

(B)Selection solely according to the NPV criterion will tend to favor larger rather than smaller investment projects

(C)When NPV = 0, the IRR exceeds the cost of capital

(D)Use of the PI criterion is especially appropriate for larger firms with easy access to capital markets

A company has invested ₹ 7,00,000 in a project, ₹ 5,00,000 initially and remaining at the end of first year. It also invested ₹ 2,00,000 in working capital at the end of 2nd year, which released back by the end of project life of 5 years. The scrap value realized from project at the end was ₹ 1,50,000. The project generated Cash inflows of ₹ 2,00,000 p.a. through years 1 to 5. If the required rate of return is 12% p.a., the approx. NPV of the project is :

(A)₹ 81,500

(B)₹ 83,809

(C)₹ 44,217

(D)The project has a negative NPV

Pay-back Period method of capital budgeting is not suitable in which of the following circumstances ?

(A)Where the firm is more interested in quick recovery of funds than profitability

(B)Where the expected returns from the projects are highly uncertain

(C)Under conditions of political and economic pressures

(D)None of the above

A project has an outlay of ₹ 14,100 in the beginning. It generated annual cash flows of ₹ 4,500 during its useful life of 4 years. The Internal Rate of return of the project will be between :

(A)11% and 10%

(B)12% and 13%

(C)11% and 12%

(D)13% and 14%

The capital outlay on a project was ₹ 75,000. Assuming that it generated NPV of ₹ 765 at discount rate of 12% and NPV of ₹ (1162) at discount rate of 13%, its IRR will be :

(A)12.4%

(B)12.55%

(C)12.61%

(D)Cannot be determined

Capital Budgeting Decisions are of paramount importance for a business firm. Which of the following factors contributes significantly to this importance ?

(A)Impact on immediate future only

(B)Involves huge amount of scarce resources

(C)Reversibility

(D)All of the above

Which of the following techniques are traditional cash flow based techniques ?

(A)Accounting Rate of Return

(B)Pay Back Period

(C)Net Present Value

(D)All of the above

A project requires an initial outlay of ₹ 5 Lakh. It is expected to generate annual CFAT of ₹ 1,25,000 through its useful life of years 1 to 5 excluding the scrap value of ₹ 1 Lakh to be realized at the end of 5th year. The Internal Rate of Return (IRR) of the project will be in the range of :

(A)10%-11%

(B)11%-12%

(C)12%-13%

(D)13%-14%

Pay-back Period with constant annual cash flows is calculated as :

(A)Initial Investment/Annual Cash Flow

(B)Initial Investment * Annual cash flow

(C)Annual Cash Flow/Initial Investment

(D)None of the above

Payback period method can be successfully employed in which of the following circumstances ?

(A)Where the firm does not suffer from liquidity problem and is interested in analysing profitability

(B)Where project is certain in terms of risk, and return is a serious concern

(C)Where good returns have been estimated but uncertainty is high

(D)None of the above

Net present value is generally preferred over Internal Rate of Return (IRR) method because :

(A)It is comparatively simple to operate

(B)It does not suffer from limitations of multiple rates

(C)The reinvestment assumption under NPV method is more realistic

(D)All of the above

The capital budgeting techniques are :

(1)Payback period

(2)Average rate of return

(3)Net present value

(4)Internal rate of return

(5)Profitability index

Which of the above is discounted cash flow techniques ?

(A)3, 4 and 5

(B)3, 4 and 2

(C)1, 2 and 4

(D)2, 3 and 1

The initial investment a project requires ₹ 5,00,000, the expected annual cash inflow is ₹ 90,000 for ten years. Determine the pay back period.

(A)5 years and 9 months (Approx.)

(B)5 years and 4 months (Approx.)

(C)4 years and 7 months (Approx.)

(D)5 years and 7 months (Approx.)

The initial investment required for projects ‘A’ and ‘B’ is ₹ 1,00,000 each. The present value of future cash flows from the projects are ₹ 1,15,500 and ₹ 1,19,500 respectively. Calculate the Profitability Index (PI) of projects A and B.

(A)PI of A and B – 0.8658 and 0.8368

(B)PI of A and B – 1.155 and 1.195

(C)PI of A and B – 0.8368 and 0.8658

(D)PI of A and B – 1.195 and 1.155

Profitability Index method gives due consideration to the .................... .

(A)Time value of money

(B)Finance cost of investments

(C)Traditional value of money

(D)Cost and time value of money

ABC Ltd. has estimated cash inflow of year 1, 2 and 3 as ₹ 500 lakh, 1200 lakh and ₹ 1500 lakh respectively. The probability of success is 0.70, 0.65 and 0.75 respectively. The PV factor @ 10% for the year 1, 2 and 3 are 0.909, 0.826 and 0.751 respectively. Estimated initial investment is ₹ 1500 lakh. The expected NPV is :

(A)₹ 307.21 Lakh

(B)₹ 305.71 Lakh

(C)₹ 307.31 Lakh

(D)₹ 310.51 Lakh

In case of agricultural and rurral development projects generally the prescribed IRR for viability is :

(A)10% in India and other developing countries

(B)15% in India and other developing countries

(C)20% in India and other developing countries

(D)22.5% in India and other developing countries

GRI Co. Ltd., decided to invest in plant and machinery ₹ 650.00 lakh and life of asset estimated is 5 years. At the end of the fifth year estimated residual value 3.00 lakh and disposal expenses 1.00 lakh only. The estimated inflow ₹ 75, 90, 110, 125 and 140 lakh respectively and PVF @ 9% for the year 1-5 as (0.9174, 0.8417, 07722, 0.7084 and 0.6499 respectively). Calculate NPV.

(A)239.66

(B)(–) 239.66

(C)240.96

(D)– 240.96

A company is considering a proposal to install either a semi-automatic or highly automatic machine. If the firm installs a semi-automatic machine it excludes the acceptance of proposal to install highly automatic machine. Which type of capital budgeting decision is this?

(A)Mutually exclusive decisions

(B)Independent decision

(C)Contingent decisions

(D)Rejectable decisions

Derive the formula for calculation of NPV if ‘NCF’ represents net cash flow, ‘K’ represents risk adjusted discount rate, ‘I’ represents initial investment, and ‘t’ represents time period:

NCF  n

(A)NPV= t  0 (1  k) t  I NCF  n – O

(B)NPV = t  n (1  k) t NCF  n – I

(C)NPV = t  0 (1  k) t NCF  n I –

(D)NPV = t  0 (1  k) t - 1

A profitability index of 0.90 for a project means :

(A)The present value of benefits is 90% greater than the project’s costs

(B)The project’s NPV is positive

(C)The project returns 90 cents in present value for each current rupee invested

(D)The payback period is less than two years

Which of the following statements is correct ?

(A)If the NPV of a project is greater than 0, its PI will be negative

(B)If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0

(C)If the PI of a project is less than 1, its NPV should be negative

(D)If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV will be greater than 0

If the cut off rate of a project is lower than IRR, we may :

(A)Accept the proposal

(B)Reject the proposal

(C)Be neutral about it

(D)Wait for the IRR to increase and match the cut off rate

The re-investment assumption in the case of IRR technique assumes :

(A)Cash flows can be re-invested at the project IRR

(B)Cash flows can be re-invested at the weighted cost of capital

(C)Cash flows can be re-invested at the marginal cost of capital

(D)None of the above

For a Project, the cost benefit ratio is equal to one, then :

(A)IRR will be greater than one

(B)IRR will be greater than discount rate

(C)IRR will be lesser than discount rate

(D)IRR will be equal to discount rate

In a capital budgeting decision, incremental cash flows mean :

(A)Cash flows which are increasing

(B)Cash flows occurring over a period of time

(C)Cash flows directly related to the project

(D)Difference between cash inflows and outflows for each and every expenditure

Shaktiman Inc. considering a project that requires ₹ 4 Crore as initial investment. It is expected to generate annual after-tax cash flows of ₹ 60 Lakh for 12 years. Shaktiman’s weighted average cost of capital (WACC) is 14%. This project’s net present value (NPV) and the approximate internal rate of return (IRR) are :

NPV IRR

(A)60,40,000 10%

(B)60,40,000 14%

(C)62,10,000 14%

(D)62,10,000 10%

Mohan Pizza Ltd. is considering purchasing of a Pizza Oven. The expected purchase price is ₹ 2,70,000, expected annual revenues from the oven is ? 1,50,000, and expected annual costs are ₹ 90,000, including ₹ 22,500 of depreciation. The investment has a payback period of approximately :

(A)2.3 years

(B)4.2 years

(C)3.3 years

(D)4.5 years

A capital budgeting technique which does not require the computation of cost of capital for decision making purposes is,

(A)Net Present Value method

(B)Internal Rate of Return method

(C)Modified Internal Rate of Return method

(D)Pay back Period Method

Investment Decision in Financial Management does not include :

(A)Dividend Payout Decision

(B)Capital Budgeting Decision

(C)Working Capital Management

(D)Re-allocation of Capital

MNP Ltd. is considering purchasing of an Asset costing ₹ 80,000 and having a useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are ₹ 25,000 per annum and for the last two years ₹ 20,000 per annum. What is the Payback period for this investment ?

(A)3.2 years

(B)3.5 years

(C)4.0 years

(D)Cannot be determined from this information

ABC project has the following cash inflows for 4 years as ₹ 34,444; ₹ 39,877; ₹ 25,000; and ₹ 52,800 respectively. The initial Investment is ₹ 1,04,000. Find the correct statement from the following :

Present value of an annuity of rupee one on various discounting factor in 4th year is :

(A)The IRR is less than 9%.

(B)The IRR is greater than or equal to 9%, but less than 13%.

(C)The IRR is greater than 16%, but less than 18%.

(D)The IRR is greater than or equal to 17%.

A firm expects an NPV of ₹ 8,000 if the economy is exceptionally strong (30% probability), an NPV of ₹ 4,000 if the economy is normal (40% probability), and an NPV of ₹ 2,000 if the economy is exceptionally weak (30% probability). Expected Net present value is ............ .

(A)₹ 5,200

(B)₹ 6,000

(C)₹ 5,000

(D)₹ 4,600

Find the correct statements regarding the risk-adjusted discount rate (RADR) approach ?

(A)Under the RADR approach, we should accept a project if its net present value (NPV) calculated using a risk-adjusted discount rate is positive.

(B)Adjusting the firm’s overall cost of capital upward is required if the project or group are of higher than average risk.

(C)Under the RADR approach, we would still compare a project’s internal rate of return (IRR) to the firm’s overall weighted-average cost of capital in order to decide acceptance/rejection.

(D)Adjusting the firm’s overall cost of capital downward is required if the project or group are of lower than average risk.

Which of the following are not applicable in the case of Payback period calculation of investment appraisal ?

(A)It is simple in concept and application.

(B)It favours only those projects that generate substantial inflows in the earlier years.

(C)The cut-off period is chosen arbitrarily.

(D)It considers the time value of money.

Capital Budgeting Decisions are part and parcel of :

(A)Financing and Investing Decisions

(B)Investing and Dividend Decisions

(C)Financing and Dividend Decisions

(D)Only Investing Decisions.

If an investment of ₹ 3,00,000 pays ₹ 25,000 p.a. in perpetuity, what is the Net Present Value, if the interest rate is 9% ?

(A)₹ –22222

(B)₹ +22222

(C)₹ +24736

(D)₹ +27250

Firm A is considering a project A. The project involves cash outlay of ₹ 50,000 (t = 0), working capital outlay of ₹ 20,000 (t = 2), and is expected to generate Cash Flow After Tax (CFAT) of ₹ 12,000 per annum for 5 years excluding working capital release back and terminal value of 20%. What would be your advice to the company using Net Present Value approach, if its cost of capital is 10% ?

(A)Accept the project.

(B)Either Accept or Reject it as NPV is zero.

(C)Reject the project.

(D)Information incomplete.

(d)Calculate the Accounting Rate of Return (ARR) and rank the machine accordingly:

Machine has to be written off over a period of 5 years by straight line method.

(c)‘Capital Budgeting’ and ‘Capital Rationing’.

(b)X Ltd. has a machine having an additional life of 5 years, which costs ₹ 2,00,000 and has a book value of ₹ 80,000. A new machine costing ₹ 4,00,000 is available. Though its capacity is the same as that of the old machine, it will mean a saving in variable costs to the extent of ₹ 1,40,000 per annum. The life of the machine will be 5 years at the end of which it will have a scrap value of ₹ 40,000. The rate of income tax is 46% and it is the policy of the company not to make an investment if the yield is less than 12% per annum. The old machine, if sold today, will realise ₹ 20,000; and will have no salvage value if sold at the end of 5th year. Advise X Ltd. whether or not the old machine should be replaced. Assume capital gain to be tax free and ignore income tax saving on depreciation as well as on loss due to sale of existing machine.

(c)Ms. Roopa Engineer who graduated recently has a good knowledge of financial market. She planned some experiment under regulatory environment to start a Fin Tech startu p. Can she do this experiment ? Explain with respect to the framework for Regulatory Sandbox as issued by SEBI.

(ii)As the Company Secretary of EcoRenewables Energy Ltd., identify and justify the five essential feasibility studies necessary for a proposed hydroelectric power project in a remote region in Odisha. Subsequently, outline the key due diligence areas to assess the project’s financial viability.

Which of the following is not a type of Feasibility Studies conducted during primary stage of a project financing to undertake a macro view of project ?

(A)Market Feasibility

(B)Environmental Feasibility

(C)Technical Feasibility

(D)Financial Feasibility

The project planning activities and goals include defining :

(1)The specific work to be performed and goals that define and bind the project

(2)Estimates to be documented for planning, tracking, and controlling the project

(3)Commitments that are planned, documented, and agreed to by affected groups

(4)Project alternatives, assumptions, and constraints

Select the correct answer from the options given below :

(A)(1), (2) and (3) only

(B)(2), (3) and (4) only

(C)(1), (2), (3) and (4)

(D)(1), (3) and (4) only

A project under consideration whose useful life is 4 years, will have no change in revenue but will save cost of ₹ 1,60,000 annually. It has IRR of 15%. What is the project cost i.e., initial investment ?

(A)₹ 10,66,667

(B)₹ 4,80,200

(C)₹ 5,32,800

(D)₹ 4,56,800

Which among the following is generally not incorporated in set of analysis in a project report ?

(A)Market Analysis

(B)Technical Analysis

(C)Financial Analysis

(D)Fundamental Analysis

Which of the following is not a constituent of primary feasibility study conducted during primary stage evaluation of a project ?

(A)Market Feasibility

(B)Technical Feasibility

(C)Social Feasibility

(D)Financial Feasibility

When it is determined that the project is not on track, project re-planning is considered. This is part and parcel of :

(A)Project Start-up stage

(B)Project Execution stage

(C)Project Planning stage

(D)Project Close-out stage

Which of the following is an important ingredient of project appraisal under normal conditions ?

(A)Accuracy of methods and measurements planned to be adopted is well adhered to

(B)Objectivity of the proposal is highlighted so as to keep off from the bias and prejudices

(C)Ensure the reliability of the data and projected statements

(D)All of the above

Cost escalation results in :

(A)The decrease in project cost

(B)The increase in project cost

(C)No change in project cost

(D)The increase in profit