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

HIPA 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

EACEstimated cost at completion 539473.68

ETCEstimated time to complete 13.89

Page 8