Agribusiness project appraisal and evaluation UE Past Papers Questions.

Study the following data for the purpose of assessing the project`s viability. All figures are in Million Tshs.

1. A project`s capital is 1,500.0 paid in year 1
2. Fixed machinery costs200 at the start
3. The working capital for years 1 to 7 is 30.0, 15.0, 20.0, 13.0, 10.0 and 10.0 respectively.
4. All remaining fixed capital is sold at 400.0 and working assets at 80.00 in year 7.
5. Fixed machinery is sold in year 7 at 10% of its buying price.
6. Yearly financing costs, with a 2 year grace period, are 30.0, 30.0, 22.0, 20.0, 20.0
7. Revenues: 250.0 in year 1 and then it increases by 20% annually

The task

1. Construct the cash-flow for the 7 years
2. Calculate the NPV and BC ratio at 10% discount rate
3. What is the IRR of this project?
4. Make a statement regarding the worthiness of this investment
5. Briefly, in one paragraph, explain why it was necessary to asses the internal rate of return?

Answer / Solution

UNSOLVED

Three villages located in semi-arid Great Ruaha River valley intends to draw water from Mtera dam near Mtera township located about 40 kilometers away. The investment and running cost are summarized below:

Year0:

• Negotiation and agreements cost total $2,000

Year1

• Use 10`` pipes each 20 metre long sold at $46 each.
• Pipe connectors at a cost $80,000.
• Cost of constructing a huge water reservoir in each village is estimated at $150,000
• Cost of labour and other inputs for laying pipes is $200 per kilometer

Year2

• Water pump and other accessories at $200,000
• Use 2`` distribution pipes within the villages: about 2000 pipes are needed at $20 each

Year3-20

• Repair and maintenance cost per month estimated at $1000
• Water use fee payable to Rufiji Basin Development Authority(RUBADA) at $3000 per annum

The villages have 10,000 potential water use households(with annual increase of 2.5%) who will start using water in year 3(three) on wards. Assume that the useful life of the project is 30 years.

Task:

1. If each household is charged $12 per month as water use fee. Is this a worthy project to invest at 15% opportunity cost of capital? Why?
2. Assume that this is a Government funcked project which is not intended for profit or make loss. Suggest the lowest possible price which can be charged to the household per month without making a loss or profit (i.e NPV=0)

Answer / Solution

UNSOLVED

Two projects A and B are to be evaluated at 12% interest rate. Project A. cash flow in year 0 is -10,000 and cash flow in year 1 is 20,000. Project B cash flow in -50,000 in year 0 and cash flow in year 1 is 75,000. Which is the best project to accept? Why?

Answer / Solution

UNSOLVED

Expected cash flows of three projects are given in Table below:

If the opportunity cost of capital is 10%

1. Determine project acceptability
2. Show the ranking of projects by each of the three methods

Answer / Solution

UNSOLVED

After finishing your degree in August 2016 you may get a job that would pay you Tsh 15,000,000 per annum for next three years. But if you decide to continue with MSc soon after you finish you will be spending Tshs 15,000,000 per year for two years, but at the end of two years you are sure of getting a job that will pay you Tsh 50,000,000 per annum. If you decided to continue with your job (without MSc). after the first three years, you would get Tsh 50,000,000 per annum. Assuming an interest rate of 10% should you opt to go for MSc soon after your BSc degree?

Answer / Solution

UNSOLVED