Agribusiness project appraisal and evaluation UE Past Papers Questions.

A company has a cost of capital of 10% as investment opportunity and estimated cash flows are shown in Table below.

1. Rank the project acceptability by using (a) NPV, (b) BCR, (c)Discounted PBP,
2. Rank the projects based on their sensitivity level

Answer / Solution

UNSOLVED

Suppose a potential investor approaches you to assess the worthness to invest his money in dairy production

1. What type of information you need to be able to estimate NPV and use it as a basis for your advice?
2. Suppose your estimates or calculations gave you an NPV of less than zero.

1. What is the likely benefit/cost ratio of the dairy production project?
2. What kind of advice would you give?(clearly show how you arrive at your answer)

Answer / Solution

UNSOLVED

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

1. A project`s fixed capital is 1,500.00 paid in year 1
2. Fixed machinery costs 200 at the start
3. The working capital for years 1 to 7 is 30.00, 15.00, 20.00, 28.00, 13.00, 10.00 and 10.00 respectively
4. All remaining fixed capital is sold at 400 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 30.00, 30.00, 22.00, 20.00
7. The discounting index for 10%, for end of years 1 to 7 is 0.91,0.83,0.75,0.68,0.62,0.56,0.51
8. Revenue 250 in year 1 and then it increases by 20% annually.

Required

1. Construct the cash flow  for the 7 years
2. Calculate the NPV and the BC Ratio at 10% discount rate
3. Make a statement regarding the worthness of the investment
4. Briefly, in one paragraph, explain why it would still be necessary to assess the internal rate of return (IRR).

Answer / Solution

UNSOLVED

Consider the following situation. Two hectares farm project is about to start by putting 15mm wire fence on its entire perimeter. Water needed for making the concrete for fixing fencing poles is essentially rerquired to be obtained from the bore hole that will be dug in the same farm. The first activity is digging the 75cm deep holes for whole farm perimeter. The need for water for making concrete for fixing the poles arises only after the digging of the holes is completed. The fencing poles will be placed at an interval of 2 meter. Only one labourer is available and he is tasked to dig 10 holes per day. The second activity of digging water bore hole will be doneby two highly experienced labourers who have promised to finish the job for exactly 15 days. The project manager has agreed that all these two activities to be done concurrently so that by the time digging holes is completed, placing the fencing pole and fixing fence wire start. Then  two (2) days will be needed for quality assurance team to the fence before handling over the project ,. From these scenarios you are required to:

1. Draw the supposed network for this project
2. What is the latest event time for digging a bore hole
3. What is the duration of this project
4. Indicate the critical activity
5. Indicate floating activities.

Answer / Solution

UNSOLVED

1. Much of the rationale for public investment, and thus the need for cost benefit analysis (CBA), is to correct the so called market failures. Describe briefly various types of market failures
2. In conducting CBA of development projects, the social rate of time preference should be used in discounting all benefits and costs that accrue in the future.

1. What is social rate of time preference?
2. Why is there a need to discount costs and benefits that accrue in the future in implementing CBA?

Answer / Solution

UNSOLVED