1 IIPM THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT Project Appraisal -Re-Examination Assignment Paper Code: IIPM/FIN04/PA002 Max.

Marks: 100 General Instructions: . The Student should submit this assignment in his/her own handwritten (not in the typed format). . The Student should submit this assignment within 2 days from the issue of the as signment. . The student should attach this assignment paper with the answered papers. . Write legibly and keep the length of the answer as per the weightage (in terms o f marks) assigned to each question. DO NOT be unduly short or long in providing the relev ant details. . The student should only use the Rule sheet papers for answering the questions. . Failure to comply with the above instructions would lead to rejection of assignm ent. Specific Instructions: . There are Four Questions in this assignment. The student should answer all the q uestions along with their subparts. Marks are being assigned to each section of the question as well. . Each Question carries equal marks (25 marks) unless specified explicitly. Question-1(A)[18Marks] An American food company is proposing to launch a new ready to eat food in the I ndian market. Company has done a situational analysis which indicates positive results for the product. Company has an advantage of launching the product in rapid growth stage, with fe w competitors in the market. However, going forward there would be threat of new entrants in t he market. Company would first like to target the urban markets and then gradually expand t o semi urban markets. Company s primary target audience would be nuclear families, working wome n, frequent travellers and students living away from their parents. Company is cost conscious and risk averse. Company has tried to collect the information on past demand but the re is no

2 information available on past demand. It needs to collect the following informat ion, which will help the Company to decide its positioning, Pricing and advertising strategy: Expected Demand Income and Price Elasticity of Demand Social Demographics like gender ratio education levels etc Income levels Rate of urbanisation Nuclear families Working women population Perception of ready to eat food Expectation from ready to eat food Acceptable price Level of Competition Government policies/Regulations The company has no experience of Indian markets and therefore hired a Xpert Cons ultants to support them . You are a research analyst with Xpert Consultants who has been gi ven this assignment to gather required information and help out American food Company. (i) Assess which of the information that Company needs can be collected through Secondary sources and Primary sources. Highlight the advantages and disadvantges of both t he sources (ii)Prepare a plan of performing the market survey detailing the steps involved in collecting information through Market Survey. Describe briefly ( (iii)What are the primary factors which you will consider while selecting the sa mple size for market survey. What sampling strategy would you advise the Company? (iv)Considering the information given, what methods of demand forecasting can Co mpany use? (v)Considering that product is launched in the growth stage, what do you think w ould be the expected NPV of the product. What would be the impact on the profitablity in fut ure when new products enter the market

Question-1(B)[7Marks] Max ltd. is planning to setup a new plant to produce a new product. You have to advise on plant location and conduct a market survey to collect primary information. Describe in detail the factors that you will consider for performing the above t wo tasks. Question-2(A)[13Marks] Arizona Corporation is evaluating two mutually exclusive projects. Project A req uires initial investment of Rs 2,00,000 and Project B needs Rs 1,70,000. The Company employs C ertainity Equivalent approach in evaluating risky investments. Cost of equity is 12%, Cost of debt is 8%

3 and Current yield on Government Securities is 5%. Following are the respective c ashflows and certainity equivalents of the project: Year Project A Project B Cash Flows Certainity Equivalent Cash Flows Certainity Equivalent 1 50,000 0.8 90,000 0.9 2 1,00,000 0.7 90,000 0.8 3 1,10,000 0.5 1,00,000 0.6 4 1,35,000 0.4 1,20,000 0.5 (i)Based on NPV method of evaluation, advise which project should Company accept ? (ii) Which project is riskier? Explain why Question-2(B)[12Marks] Carleton Company is in hospitality business and is proposing to invest in a prof itable business idea. It had launched a drive Think WAVE in the organisation to collect ideas from its employees. The drive was immensely succesful and Compnay ended up in collecting 100 ideas. It now needs to to perform preliminary screening of ideas. You being the part of Project Management team have been givein this this assignment of screening the ideas. (i) Briefly explain the theories for idea selection (ii)Describe factors that should be considered while performing idea screening Question-3(A)[12.5 Marks] (a)A Company is evaluating 3 projects, namely Orleans, Ramco and Aztec. Followin g are the expected cashflows of the project: Demand Probability Orlean Ramco Aztec Weak 0.3 30,000 60,000 45,000 Moderate 0.5 50,000 70,000 55,000 Strong 0.2 80,000 75,000 90,000 (i)Based on the Expected values, advise the Management which project should be s elected? (ii)Also advise which project should be selected in each of the following scenar ios: Worst case scenario Optimistic scenario (b) Descibe breify any 2 of the following methods of Demand Forecasting: (i)Income & Price Elasitcity of Demand (ii)Moving Averages Method (iii)Jury of Experts Methods

4 Question-3(B)[12.5Marks] Following is the schedule of activities of a Project Activity Time estimates (weeks) Optimistic Most Likely Pessimistic 1-2 3 4 5 1-3 12 8 16 2-3 5 6.5 11 2-4 3 1 5 3-5 7 11 15 4-5 3 5 7 5-6 14 10 18 You are a Project Assistant and required to: (i)Calculate the expected task duration using PERT methodology (ii)Calculate Earliest Occurrence and Latest Occurrence time of each activity (iii)Calculate Standard Deviation of Critical path (iv)Calculate Free Float of each activity Question-4(A)[13Marks] Collin & Co is proposing to replace an old machine by the new machine. The book value of old machine is Rs 6,00,000, which can be sold for Rs 5,00,000. It has remaining life of 3 years, after which salvage value is expected to be Rs 1,50,000. The machinery is being curren tly depreciated @20% using written down value method. This machine requires Rs 2,50,000 as worki ng capital. The new machine costs Rs 20,00,000 and has a resale value of Rs 5,50,000 at the end of 3 years. It will be depreciated @20% per annum as per written down value method. Investme nt required in working capital is Rs 4,50,000. The new machine is expected to save manufactu ring costs of Rs 6,00,000 per annum. Tax rate applicable is 50% and overall cost of capital is 15% As a project analyst, you are required to work out following: (i) Incremental cash flows associated with the replacement of old machine (ii) Based on NPV method, advise the management whether, the replacement project should be undertaken Question-4(B)[12Marks] Initial Investment outlay for a capital investment project consists of Rs 100 la khs for Plant & Costa .

Machinery. Project life is 1 year. Other details are summarised below: Sales 1 Lakh units per year Selling Price Rs 300 per unit

5 Cost Rs 60 per unit Depreciation 20% WDV method Tax rate Overall Cost of Capital 40% 10% Determine the senstivity of NPV of the Project under each of the following condi tions: (i)Decrease in selling price by 5% (ii)Increase in cost by 10% . ALL THE BEST