Solution 2 b

Year 0 1 2 3 4 5 6 7 8 9
PV Factor @ 12.0 % 1.0000 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606
PVIFA @ 12 .0 % 0.8929 1.6901 2.4018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282
Offer A Costs 500 80 100 120 150 150 150
Offer A PV of costs 500 71.429 79.719 85.414 95.328 85.114 75.995 0 0 0
Offer A NPV 992.998
UAE 241.523
Offer B Costs 700 90 120 150 150 150 150 175 175 175
Offer B PV of costs 700 80.357 95.663 106.77 95.328 85.114 75.995 79.161 70.68 63.107
Offer B NPV 1508.52
UAE 266.984
Since UAE for Offer A is lesser, it should be chosen.
Marks:
a) Find present values of costs for A & b 6
b) Find PVIFA factors for 6 & 10 years 2
c) Find UAE for offers A & b 2
d) Final conclusion 2
Page 1
Solution 2 b
10
0.3220
5.6502
0
175
56.345
Page 2
Solution 3 b
0 1 2 3 4
Initial Investment
New Machinery -150
Increase in NWC -75
-225
Operating Results
Sales Revenue 750 750 750 750
Incidental loss in existing business -25 -25 -25 -25
Manufacturing Cost -310 -310 -310 -310
Selling & Admn Expenses -300 -300 -300 -300
Overhauling cost -10
Bad debts written off -10 -10 -10 -10
Step-up promotional expenses -70
Depreciation -15 -15 -15 -15
Profit Before Tax 90 90 20 80
Tax @ 40 % -36 -36 -8 -32
Profit After Tax 54 54 12 48
Add: Depreciation #VALUE! #VALUE! #VALUE! #VALUE!
Cash Profit After Tax #VALUE! #VALUE! #VALUE! #VALUE!
Terminal Cash Flows
Incremental Salvage Value of F.A.
Recovery of Working Capital Margin
Net Project Cash Flows -225 #VALUE! #VALUE! #VALUE! #VALUE!
PV Factor for 9.0 % 1.000 0.917 0.842 0.772 0.708
PV of cash Flows -225.00 #VALUE! #VALUE! #VALUE! #VALUE!
NPV #VALUE!
Notes:
1. Manufacturing costs exclude the allocated overheads of Rs. 30,000
2. Interest on long term loans is excluded from costs using 'long term funds' principle
3. Discount factor is equal to post-tax cost of term loan = 0.15 X (1-0.4) = 0.09
4. Problem may be solved considering interest costs initially & then adding back
The final answer would not change.
Page 3
Solution 3 b
5
750
-25
-310
-300
-10
-15
90
-36
54
#VALUE!
#VALUE!
15
75
90
#VALUE!
0.650
#VALUE!
Page 4
Solution 6 b
ACTIVITY DURATION
WEEKS
PREDE-
CESSORS
RELATIONS
HIP
A 4 - -
B 3 A FF+1
C 4 A SS+2
D 9 C FS
E 5 B SS+2
D SS
F 6 C FS+4
G 4 D FS
F FS
H 7 E FS-3
I 6 G FF+2
J 7 A FS+10
K 6 H FS
I FS
J FS
Page 5
Solution 7 b
ACTIVITY DURATION PREDESC
ESSOR
SUCCES
SOR
ES EF LS LF TF
A 5 - D, E 0 5 4 9 4
B 4 - F 0 4 3 7 3
C 6 - G 0 6 0 6 0
D 4 A I 5 9 9 13 4
E 4 A J 5 9 9 13 4
F 6 B J 4 10 7 13 3
G 5 C H, K 6 11 6 11 0
H 2 G J 11 13 11 13 0
I 5 D L 9 14 13 18 4
J 11 E, F, H N 13 24 13 24 0
K 4 G M 11 15 11 15 0
L 6 I N 14 20 18 24 4
M 9 K N 15 24 15 24 0
N 6 J, L, M - 24 30 24 30 0
ANSWERS
a) Critical Paths are: C G H J N
C G K M N
B) Completion times:
i) If activity I delays by 3 weeks 30(TF on I = 4)
ii) If activity K delays by 2 weeks 32(K is critical)
Iii) If activity M is crashed by 1 week 30 (CGHJN still critical)
iv) If activity G is crashed by 3 weeks 27 (G commonon both)
NOTES:
1) It is not necessary to draw a network diagram for solving the problem
Page 6
Solution 8 a
ACTIVITY PREDECES
SORS
(Variance)2
Ta Tm Tp Ta
A - 1 3 7 3.00 1.00
B - 1 2 4 2.00 0.25
C A 2 4 8 4.00 1.00
D A 2 5 11 5.00 2.25
E B 3 6 12 6.00 2.25
F C, D 3 7 15 7.00 4.00
G D, E 2 4 10 4.33 1.78
H F, G 2 6 14 6.00 4.00
Std. Deviation A-D-F-H 3.35410197
B-E-F-H 3.24037035
z' value A-D-F-H 1.2
B-E-F-H 1.2
Probability of completion in 25 days 88.49%
DURATION
Page 7
Solution 8 b
MONTH PLANNED
COST
EARNED
VALUE
ACTUAL
COST
CPI SPI
BCWS BCWP ACWP
1 20000 24000 23500 1.02 1.20
2 60000 58000 62000 0.94 0.97
3 110000 95000 105000 0.90 0.86
4 220000 190000 205000 0.93 0.86
EAC Estimated cost at completion 539473.68
ETC Estimated time to complete 13.89
Page 8