This document provides details regarding the question paper pattern and content for the project financing and appraisal subject. It includes 4 parts - Part A contains 20 multiple choice questions worth 1 mark each, Part B contains 5 questions worth 3 marks each requiring explanations of key project finance terms, Part C contains 5 out of 8 questions worth 7 marks each, and Part D contains 2 out of 3 questions worth 15 marks each requiring longer explanations. The document provides sample questions in each part testing knowledge of topics like capital budgeting techniques, project risks and management, sources of project finance, and evaluation of project feasibility.

1. Project financing and Appraisal
Question paper pattern
Part A 1 mark x 20 questions (no choice) 20
Part B 3 marks x 5 questions (no choice) 15
Part C 7 marks x 5 questions (5 out of 8) 35
Part D 15 marks x 2 questions (2 out of 3) 30
Total 100
Part A
Objective type questions – Fill ups, choose from options, True or false
Part B
Explain the following with relation to projects:
1. Adjusted Cost of Capital (ACC)
2. Adjusted Present value
3. Benefit cost ratio
4. Capital Asset pricing method (CAPM)
5. Capital rationing
6. Covenants
7. Debt service coverage ratio
8. Dependant projects
9. Domestic Resource Cost ( DRC)
10. Economic Rate of return ( ERR)
11. Environmental Impact Assessment (EIA)
12. Feasibility study
13. Hurdle rate
14. Limited Recourse structure
15. Mutually exclusive projects
16. Net Present Value
17. Options
18. Pay back period
19. Project rating index
20. Public Private Partnerships
21. Risk Free rate
22. Social Cost Benefit Analysis – SCBA
23. Special Purpose Vehicle
24. Weighted average cost of capital - WACC
25. Weighted marginal cost of capital - WMCC

2. Part C - 7 marks questions (answer 5 out of 8)
1. Detail the importance of technical arrangements in projects
2. What components constitute the cost of a project if setting up of a manufacturing unit
is your project?
3. What are the principles of cash flows that have to be considered in projects? Explain
with examples how these principles are relevant.
4. What are the tax benefits available for projects?
5. What are the benefits of mergers and amalgamations in projects?
6. What is Public Private Partnership? Explain the different types of PPPs as relevant to
projects.
7. What are the important ratios that are considered for evaluating viability of projects
from the point of view of (a) financial institution (b) share holders
8. What are the special issues with regard to financing of infrastructure projects?
9. In what ways does strategy help in the different levels of project management?
10. Briefly explain specific tools that would help during the stage of (1) projects
selection ( 2) projects planning ( 3) projects implementation (4) projects
monitoring
11. How does Project management software assist in project management? Substantiate
your answer with specific instances of support during (1) projects selection ( 2)
projects planning ( 3) projects implementation (4) projects monitoring
12. Why is Venture Capital as a source of project financing gaining importance in
countries like India? How is it different from Private Equity?
13. How do financial institutions calculate investment, operating inflows and terminal
inflows with respect to projects? How is it different from usual financial projections?
14. Calculate the social cost and benefits of the following project
Presently, a ferry service, operated privately, is being used to cross a river. The ferry
operator charges Rs.3 per person. It costs him Rs.2 per person. 50,000 persons use the
ferry service annually.
The government is considering construction of a bridge over the river. It is estimated
that after the bridge is constructed 2, 50,000 persons will cross the river on the bridge.
The bridge is expected to cost Rs 3 million initially and its annual maintenance cost

3. would be Rs 10,000. It has an indefinitely long life. Once the bridge is constructed the
ferry operator is expected to close down the ferry service and sell the ferry boats for
Rs.100, 000.
15. Your corporate budget has allotted Rs. 32,500 (in ‘000s) for this capital budgeting
period. You have the following projects on hand.
Project Initial cash outflow IRR NPV PI
( Rs. In 000s) (Rs. In 000s)
A 500 18% 50 1.10
B 5,000 25 6,500 2.30
C 5,000 37 5,500 2.10
D 7,500 20 5,000 1.67
E 12,500 26 500 1.04
F 15,000 28 21,000 2.40
G 17,500 19 7,500 1.43
H 25,000 15 6,000 1.24
Of the above, what investment opportunities would you undertake? Substantiate your
selection adequately?
16. BW is considering a new Rs. 4,25,000 automated machine that will save Rs.1,50,000
on operating expenses per year for the next 6 years. The required rate is 11%. BW
can borrow Rs. 180,000 at 7%. Principal of Rs. 30000 and the interest is repaid every
year. The firm is in the 30% tax bracket. Should BW go in for this investment?
Justify your answer.
17. SE’s capital structure of equity to debt is in the ratio of 40:60. The cost of various
sources of finance in the different levels is as follows:
Source of finance Range of new finance in million (Rs) Cost (%)
Equity 0 – 30 18%
More than 30 20
Debt 0 – 50 10
More than 50 11
The company has the following identified projects for investment
Project Amount in million Rs. IRR
A 30 18.0%
B 20 12.0
C 25 15.3
D 40 16.5
E 10 13.4
What in your opinion in the optimal capital budget for SE based on selection of feasible

4. Projects?
18. A project was begun on 1st Sept 2009 and is expected to be completed by 31st
August 2009. The project was reviewed on 1st April 2010 when the following
information has been developed.
Budgeted cost for work scheduled (BCWS): 6,000,000
Budgeted cost for work performed (BCWP): 5,500,000
Actual cost of work performed (ACWP): 5,800,000
Budgeted cost for total work (BCTW) : 10,000,000
Additional cost for completion (ACC) : 5,000,000
(a) What analysis can you draw from the above details?
(b) What is your comment on the progress of the project?
19. G Ltd has set up a project 4 years ago. The project has a remaining life of 6 years.
The cash flows for the remaining 6 years are given below:
Year 1 2 3 4 5 6
Cash flow in million Rs. 30 35 45 50 30 25
The initial project outlay was Rs. 180 millions. G Ltd. is not keen to continue the
project. The salvage value of the project if terminated immediately is Rs. 130 million.
Y Ltd has offered to buy the project at Rs. 165 million. The discount rate currently is
12%.
a. Should G Ltd accept Y Ltd’s offer?
b. If Y Ltd drops its offer, what should G Ltd do?
Substantiate your decisions with numerical figures.
20. What would be the methods of raising finance for the following projects.
Substantiate your suggestions with reasons:
a. A public limited company with over 25 years standing in the industry,
which does not want to dilute its rights
b. A company whose financiers are not willing to provide additional working
capital finance because of its improper working capital management
c. A new company with a novel technology promoted by a group of
professionals who have no prior business experience
d. An organisation wants to go in for new machinery, for which the financial
institutions are not prepared to extend credit on account of the existing
high borrowings.
e. A very widely held public limited company which has shown very
impressive growth in the market and tax payouts are very high.

5. PART D
15 marks questions
1. Explain risk w.r.t projects? What are the various risks that can affect projects and
how can they be managed? (3, 12)
2. Explain briefly the various aspects on which projects are appraised by financial
institutions? Explain technical appraisal of any specific project of your choice.
( 10,5)
3. What are the key features of project finance? What are the various sources of
project finance? ( 5,10)
4. Discuss the pre-requisites of successful project implementation? What do you
think are the qualities of a Project Manager in ensuring successful project
management? (8,7)
5. What are the means of infrastructure financing? Distinguish between leasing and
HP as sources of finance. (10,5)
6. Who are the major parties to a project and what their responsibilities are. Explain
the various contracts/ agreement entered into with each party to ensure
compliance (10,5)
7. A builder owns a plot of land that can be used either for 8 or 12 apartment units.
Cost of 8 apartment block is Rs. 36 lakhs and 12 apartments is Rs. 62 lakhs resp.
The current market price of a apartment is Rs. 6 lakhs. The yearly rental per
apartment is Rs. 50,000 and risk free interest rate is 12% p.a. If the market is
buoyant, the apartment sells at Rs. 7.5 lakhs or else at Rs. 5.4 lakhs. Assuming
construction cost to be pegged for the next 2 years, substantiate whether the
builder should construct apartments or leave the land vacant.
8. Given are project details of A and B. Which project would you select and why?
ANNUAL CASH FLOWS: YEAR 1 of Project A
State Probability Cash Flow
Deep Recession .05 $ -3,000
Mild Recession .25 1,000
Normal .40 5,000
Minor Boom .25 9,000
Major Boom .05 13,000

6. ANNUAL CASH FLOWS: YEAR 1 – Project B
State Probability Cash Flow
Deep Recession .05 $ -1,000
Mild Recession .25 2,000
Normal .40 5,000
Minor Boom .25 8,000
Major Boom .05 11,000
9. A machine has a book value of Rs. 4, 00,000 after depreciating it annually under
25% WDV. Cost of operating the machine is Rs. 4, 00,000. It can be sold now at a
post tax salvage value of Rs. 5, 00,000. It has a remaining life of 5 years with a
net salvage value of Rs. 1, 60,000.
It is proposed to install a new machine at Rs. 16,00,000 which has a life of 5 years
and a net salvage value of Rs, 8,00,000. Rate of depreciation is the same as that
applicable to the old machine. The net working capital requirement is Rs.5,00,000. A
saving of Rs. 3,00,000 ( other than depreciation) is expected after the new machine
installation. Tax rate applicable is 30%. According to you, do you think this
replacement project is feasible?
10. Five projects A, B, C, D, E are available to the company.
A B C D E
Initial Investment 20000 50000 75000 100000
150000
Annual Cash flow 6000 8000 15000 15000 25000
Life in yrs 5 10 8 12 7
Salvage value Rs. 5000 - - 15000 50000
Additional information:
Project B is a pre requisite for Project E. Project C and D are mutually exclusive.
Otherwise the projects are independent. The cost of capital of the firm is 10%. The
decision criterion is the NPV.
Which projects have to be chosen at the following budget levels
(a) Rs. 1,50,000 (b) Rs. 2,00,000

7. 11. The following details are given to you:
Project Activity Optimistic Most likely Pessimistic Total Cost of
Time in months Time in months Time in months the activity
A 1-2 9 12 21 2,600,000
B 1-3 6 12 18 6,000,000
C 2-4 1 1.5 5 2,000,000
D 3-4 4 8.5 10 2,000,000
E 2-5 10 14 24 1,500,000
F 4-5 1 2 3 1,500,000
The funds will be released in the following manner
Year 1 6,900,000
Year 2 6,800,000
Year 3 1,900,000
The annual capital budget if not drawn within the year will lapse. Suggest how the
Project activities can be scheduled to ensure completion of projects within the least time
possible without lapsing the annual budget.
12. The scientists at Hero have come up with an electric moped. The firm is ready for
pilot production and test marketing. This will cost Rs.20 million and take six months.
Management believes that there is a 70 percent chance that the pilot production and test
marketing will be successful. In case of success, Hero can build a plant costing Rs.150
million. The plant will generate an annual cash inflow of Rs.30 million for 20 years if the
demand is high or an annual cash inflow of Rs.20 million if the demand is low. High
demand has a probability of 0.6; Low demand has a probability of 0.4.
What is the optimal decision strategy Hero should take? Substantiate your views using
the Decision Tree Analysis.