Sample Paper

ü Project Appraisal and Financing – End Term Exam – December 31, 2010 (2Hours)

ü Maximum Marks – 45 (Closed Books, closed Notes, Only Calculators Allowed)

ü Professor Pradip Lath

Question 1 – Give the difference between the following: (2 x3 = 6 Marks)

ü Fund Based and Non Fund Based Finance

ü Multiple Banking and Consortium Finance

ü Primary Security and Collateral Security

Question 2 – Consider the case of the BA Ltd. And complete the following:

ü Gross and Net DSCR with the year wise cash flows and the average DSCRs. The computation may be done for only the 3^rd year and the process may be shown clearly for the other years and so also the average DSCR. (6 Marks)

ü Cash Flows as per the total funds method for finding out IRR/NPV. Show the cash flows year wise for the whole period of the project and the basis of the same and you need not compute IRR. (6 Marks)

ü Breakeven and cash break-even level. The computation may be done for only one year (Year 2) and the process may be shown and the actual computation need not be done. (6 Marks)

Question 3a – Considering the same case of BA ltd. A Greenfield project and choose 6 financial indicators including the 3 above indicators (i.e. 3 new indicators of your choice and 3 above) and make a financial credit risk rating format with each indicator’s benchmark levels of maximum and minimum marks along with its respective weight taking the total to 50 marks. You are to specify the relevant usage period of the parameter for the purpose of the credit risk rating format. You are not to compute the company ratio and show only the basis and the year/period of relevance.

List 4 parameters on management appraisal rating with respective weights for each and 5 parameters on industry and business and the total weight of these 9 parameters should also be 50 thus taking the total to 100 marks. The summary should be made in a tabular format for clarity and the details should also be shown clearly (14 Marks)

Question 3b – What information would you include in the appraisal report besides, the above parameters (already considered by you in 3a). Please give only a list of the items in different categories and make 2 sets – One as mandatory and the other as optional (5 Marks)

Question 4 – True or False – Reasons necessary for obtaining marks

In case of multiple projects: There will always be a conflict between NPV and IRR for 2 mutually exclusive project with NPV profiles having a Fisher’s Intersection. Justify your answer with diagram.

BA Limited

Annexure 1 – Estimated cost of the project and proposed sources of finance

A – Estimated cost of the project	Amount (INR, 000’s)
Land including land development	1800
Building	11164
PPE	20668
Preliminary and Pre-operative Expenses	2186
Contingencies (5% of Building and PPE)	1592
Capital Cost of Project	37410
Add: Margin money for Working Capital	8384
Estimated Cost of the Project	45794

B – Proposed Sources of Finance	Amount (INR, 000’s)
Promoters Capital / Equity	20894
Term loan from Bank	24900
	45794
Working Capital Finance	21105

Annexure 2 – Projected Profitability Statement (Amount – INR, 000’s)

Capacity Utilization	0.6	0.7	0.8	0.8	0.8	0.8
Years	1	2	3	4	5	6
A) Sales	145060	169236	193413	193413	193413	193413
B) Costs
Raw Materials	120960	141120	161280	161280	161280	161280
Packing Material	1261	1472	1682	1682	1682	1682
Labor	4023	4425	4867	4867	4867	4867
Power	2664	3108	3552	3552	3552	3552
Repair and Maintenance	807	1615	2422	2422	2422	2422
Depreciation	4653	4017	3470	2999	2594	2246
Total Cost	134369	155757	177274	176803	176398	176049
C) Gross Profit	10691	13480	16139	16610	17015	17364
D) Administrative, office and Selling expenses	1440	1584	1742	1786	1831	1876
E) Preliminary Expenses. W/O	96	96	96	96	96	96
Interest
Term Loan	2920	2445	1901	1358	815	272
F) Working Capital	2533	2956	3380	3380	3380	3380
G) PandL before taxes	3702	6399	9020	9990	10893	11836
H) Taxes	858	1482	2089	2314	2523	2741
I) PAT	2845	4917	6930	7676	8370	9094

Annexure 3 – Computation of Interest

Interest on Term Loan

Year	Opening Balance	Repayment during the year	Closing Balance	Interest @ 12%
1	24900	2264	22636	2920
2	22636	4527	18109	2445
3	18190	4527	13582	1901
4	13582	4527	9055	1358
5	9055	4527	4527	815
6	4527	4527	0	272

Annexure 4 – Working Capital Requirement

		Holding period (months)	WCR (Year - 1)	PBF (Year -1 )	WCR (Year - 2)	PBF (Year - 2)	WCR (Year - 3)	PBF (Year - 3)
1	Raw Material	2.00	20160	15120	23520	17640	26880	20160
2	Packaging Material	1.50	158	118	184	138	210	158
3	Finished Goods	0.50	5405	4054	6322	4742	7242	5431
4	Debtors	0.25	3022	1813	3526	2115	4029	2418
5	Working Expenses	1.00	745	0	894	0	1049	0

Annexure 5 – Projected Balance Sheet (INR, 000’s)

	0	1	2	3	4	5	6
Assets
FA	36930	32276	28259	24789	21790	19196	16950
Preliminary Expenses	480	384	288	192	96	0	0
CA		29489	34447	39410	39410	39410	39410
Cash and Bank Balance	8384	5330	7361	9808	13963	16317	18951
Total Assets	45794	67480	70355	74200	75259	74923	75311
Liabilities
Promoters Fund	20894	20894	20894	20894	20894	20894	20894
Reserves and Surplus		2845	6717	11558	17144	21335	26251
Term Loan	24900	22636	18109	13582	9055	4527	0
WCF		21105	24635	28167	28167	28167	28167
Total Liabilities	45794	67480	70355	74200	75259	74923	75311