Project Appraisal and Finance 201

5-17
INDIAN INSTITUTE OF MANAGEMENT, TRICHY
PROJECT APPRAISAL AND FINANCE
[A 3-credit course]
FACULTY: PADMALATHA SURESH
SESSION WISE GROUP ASSIGNMENTS
(Sessions 21-22)
Method of discussion
For all sessions in this course, the class will form itself into groups of 4 members in
each group. The names of the group members will have to be finalized in advance,
and the same group composition will be maintained until the end of the course.
Every case will be supplied with assignment questions to clarify the analysis. These
questions will be addressed to specific groups, who are expected to present their
analysis of the issue contained in the question.
Apart from questions for specific groups, most cases would also require all groups to
submit their answers to certain questions related to the case
All assignments will be submitted as soft copies nefore the beginning of each session
Evaluation criteria for presentations
1. All group members will have to be present and participate in the presentation.
Any member of the group who is not present in the class will not be evaluated for
the presentation made by the group to which he / she belongs
2. Soft copies of the presentation / written assignment will have to be sent to the
faculty [through the class representative] before the start of the session .
3. Presentations will be evaluated on the depth of analysis / conceptual strength
4. Presentations should not exceed 10 mins unless otherwise specified
5. For presentations involving research, the sources of information will have to be
provided.
Note: Please refer to Course Schedule for session wise Topics and Readings

Padmalatha Suresh

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Project Appraisal and Finance 201

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Sessions 21,22
Topic : Valuing Projects the ERR (completed portions highlighted yellow)
Lecture: The concept of ERR
NOTE : A quiz on the concept of ERR (lecture) and the case will be given before
beginning the case discussion. This quiz will be an individual quiz
CASE: NGHE AN TATE AND LYLE SUGAR COMPANY
Case objective: Understand how large projects impact society and how to measure
value through financial and social returns
Assignment questions
Make the following assumptions for your calculations
1. Real risk adjusted discount rate = 10%
2. Nominal discount rate = 13%
Individual assignment all participants PLEASE BRING YOUR INDIVIDUAL
LAPTOPS TO THE CLASSROOM
An xls to calculate the ERR will be sent separately. Please fill in the xls wherever case
facts are available, and bring it to the classroom on your laptops
The ERR would be calculated in the classroom during the case discussion. Please note
the calculated ERR will be submitted in the class as soft copies.
Assignment questions for specific groups
Group 3
You are the sponsor for the project. Is the mill an attractive investment? What are the
returns?

What are the major risks? Are the returns commensurate with the risks?
Group 4
Will farmers convert to cane? Consider sensitivities. Please use the following table to
weigh comparative returns [data to be taken from case exhibits]
Net return from

Opportunity cost of labor=$1

NPV of net
Value above
return $
alternative
crop$

Padmalatha Suresh

Opportunity cost of labor=$0

NPV of net
Value above
return $
alternative
crop $

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Project Appraisal and Finance 201

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CANE
Cash crops
[average]
Pineapple
Coffee
Rubber
Combo A
peanuts+maize
Combo B
peanuts+peanuts
Combo Cpeanuts + rice
Net social returns of cane vs subsistence crop say- peanuts + peanuts over a 3 year time
frame
Crops
NPV
@
Operating profits [in Dong] [undiscounted values]
peanuts+
13%
in Year 0
Year 1
Year 2
Year 3
peanuts
USD]
Revenues
Costs
Net return
Cane net
returns
Social gain /
loss
Please use inferences from the above tables to substantiate your analysis
Group 1
Will truckers buy and use their trucks for cane delivery? Consider sensitivities. Please fill
in the following table from case facts to calculate the returns to truckers
Revenue:
Mean travel distance [km round trip]
Cost to deliver [VND per ton]
Tons per load [payload]
Average trips per day
Number of days per season
Fuel costs
Lorry km / gallon
Price / gallon
Fuel cost / day
Labor costs
Average wage / day
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Project Appraisal and Finance 201

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Maintenance per season
Lorry costs
Average cost of lorry
Average km for life of lorry
Annual interest rate
Depreciation per km
Profit per season per trucker [in VND]
Revenue

------------------

Costs
Fuel
Labor
Maintenance

----------------------------------------------------------

Total costs

---------------------

Net revenue
Interest
Depreciation

-------------------------------------------------------------

Profit /loss

----------------------

Profit margin per season

--------------------%

Please base your analysis on the returns as above and the risks involved
Groups 2 and 3 ROLE PLAY
Group 2 You play the role of the Government. As government, how would you respond
to and convince the opposition in support of the project?
Group 3 You play the role of the Opposition parties. How would you question / critique
the government in respect of the project?
Both groups It is suggested that you use the calculations done in the ERR xls to clinch
your arguments
Group 4
As IFC, would you fund the project? What are the pros and cons? What will your
decision be?
Reinforcement of concepts and Summing up by faculty.
-----------------------------------------------------------------------------------------------------------Topic: Valuing projects Real options
Lecture on real options and their relevance for project finance
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FREEDOM..FOR THE TIME BEING!!!!

Padmalatha Suresh

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