1. A small project consists of 7 activities whose time estimates
are given below:
Activity
|
Activity Name
|
Time
Estimate
|
||
a
|
m
|
b
|
||
1-2
|
H
|
4
|
3
|
6
|
1-3
|
I
|
2
|
4
|
1
|
1-4
|
J
|
3
|
3
|
5
|
2-5
|
K
|
4
|
2
|
2
|
3-5
|
L
|
5
|
4
|
7
|
4-6
|
M
|
2
|
1
|
2
|
5-6
|
N
|
3
|
6
|
2
|
(a) Draw the network diagram
(b) Find the expected duration and variance for each
activity.
(c) Calculate the variance and standard deviation of
the project length.
2. (a)
What do you understand by Cost Benefit Analysis?
(b)
Omoboriowo provides the following data from a project as shown in the
table below:
Year
|
Cost
|
Benefit
|
Discount Factor@8%
|
NPV of Cost
|
NPV of Benefit
|
1
|
40,000
|
0
|
0.926
|
||
2
|
30,000
|
15,000
|
0.857
|
||
3
|
20,000
|
30,000
|
0.793
|
||
4
|
20,000
|
60,000
|
0.735
|
||
5
|
15,000
|
90,000
|
0.681
|
||
Total
|
|||||
Required:
i. Copy and complete the table above.
ii. Calculate Net Benefit
iii. Calculate Cost Benefit Ratio
iv. Calculate Benefit Cost Ratio
v. Calculate Net Cost if the total benefit reduced by 30%.
3. Feyikogbon recently convinced her friends and
relatives to grant her a loan of
N2,400,000 which she intends to invest in a farming
project.
She estimates that the project will yield the
following returns annually as follow:
Year N`000
1 100
2-5 300
6 400
7 700
8-10
1,000
Feyikogbon `s cost of capital is 20%.
As a student of Southwestern University of Nigeria,
HND to B.SC conversion programme, you are require to calculate using the
following methods of capital budgeting techniques under certainty:
a. Accounting
Rate of Return (ARR)
b. Discounted
Payback Period (DPBP), assumed the initial investment to be half of the loan
granted to Feyikogbon.
c. Net
Present Value (NPV)
d. Internal
Rate of Return (IRR)
Advice Feyikogbon based on your results in (a-d)
above.
4. Assignment Won Wa Die Enterprises Limited has two
investment options, each of which involves an initial outlay of N3,000 and
expected life of 3years.
Annual net cash flows from each project being one
year after the initial investment is made and have the following probability
distributions.
Project
|
State of the world
|
Probability
|
Annual net cash flows
N
|
A
|
I
II
III
|
0.2
0.6
0.2
|
2,400
3,000
3,600
|
B
|
I
II
III
|
0.2
0.6
0.2
|
0
3,000
7,500
|
(a) What is the expected value of the annual cash
flow from each project?
(b) What is the risk-adjusted net present value of
each project if the company has decided to evaluate the riskier project at 10%
and the less riskier project at 8%.
5. Discuss how Project Analysis and Evaluation is germane to your discipline?
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