Project Analysis and Evaluation (ECO311)
DIPET 1 in Economics - ECNT
Semester: First Semester
Level: 400
Year: 2017
1
NOTE: ATTEMPT ALL QUESTIONS. SHOW ALL CALCULATIONS WHERE NECESSARY. FINANCIAL
TABLES ARE ALLOWED.
QUESTION I
(30 Marks)
Write TRUE for the correct statement and FALSE for the wrong
one. T and
F or vrai
and Faux are not allowed
1) Project analysis and evaluation is relevant for both resource abundant and resource
scarce economies.
2) Perception is critical in the differences in project ideas.
3) Cost overrun occurs when execution costs exceed final costs of projects.
4) Public projects are motivated by tangible profits.
5) A national plan consists of an agglomeration of private projects.
6) All technical studies are carried out at the evaluation or appraisal phase of a project cycle.
7) Depreciation and replacement costs are book entries to replace used capital.
8) Project evaluation is sometimes used as an alibi for foreign aid.
9) Project benefits are tangible and intangible.
10) Intangible projects cannot be quantified and should be ignored in project
analysis.
11) The main objective of project evaluation is to choose the most profitable project
among many.
12) Wh en a n ann ui ty i s def in it e it b ec o m es a pe rp etu it y.
13) Discounting makes a future, sum comparable to its present value.
14) Projects with higher NPVs have an edge over those with lower NPVs
15) Time f act o r is c r itical i n d et ermining the NPV o f a p roject.
THE UNIVERSITY OF BAMENDA
HIGHER TEACHER TRAINING COLLEGE
ECONOMICS SERIES LEVEL III
SECOND SEMESTER EXAMS 2016/2017
PROJECT ANALYSIS AND EVALUATION
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(c) What if the 100 million frs were an annuity, how much will it be in 5
years. (2 marks)
QUESTION II
(20 Marks)
Give precise answers to the following questions. Where not indicated do not
exceed one sentence.
i. Which two problems confront a potential investor? ( a phrase)
ii. What are the two principal determinants of the worthwhileness of an
investment venture. ( 2 words)
iii. What is t he common feature of all projects? ( 1 phase)
iv. Give two uses of pro ject evalu at ion ( 2 phrases)
v. Outline two ways of identifying projects ( 2 phrases)
vi. What two factors may cause co st-overrun? ( 2 phrases)
vii. L i s t t w o d e t e r mi n an t s o f p ro j e c t c o st s.
viii. Give two reasons why borrowers ch arge interest on borrow ed funds.
ix. W h a t a r e t h e t w o d e t e r m i n a n t s o f N P V ?
x. Wha t a re t he dec i sion rul es for IRR .
QUESTION Ill
(20
Marks)
1) (a) How much will 30 million FCFA cumulate to in 10 years if the interest
rate is 10% ? (2 Marks)
(b) How much will the above sum cumulate to if it is compounded semi-
annually? ( 3 marks)
2) Which would you prefer, assuming 10% time value of money?
(a) 50000frs in cash now or 5000frs perpetually? ( 2 Marks)
(b) 20 million frs in cash now or 84 million at the end of 15
tea
rs? ( 3 marks)
3) An entrepreneur is thinking of investing the sum of 240 million frs CFA that
will yield net incomes of 50 million frs, 60 million frs, 70 million frs, 60
million frs and 50 millionfrs in five years respectively. How soon can the
entrepreneur recover his investment? If he set for himself a target of three
years to recover his investment, should he invest? ( 5 Marks)
4) (a) What would be the value of the sum of 100 million frs received at the
end of 5 years, assuming a time value of money of 6%. ( 2 Marks)
(b) How much will the same amount above give at the beginning of the 6th
year. ( 1 Mark)
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QUESTION IV
(30 Marks)
Tabah, a young graduate is thinking of setting up a small transport company.
The 10 second hand mini buses will cost 97,901,000frs.
The projections indicate that each bus will make 300,000frs per month for the
first three years and 250,000frs per bus per month for the last three years.
The management and operation costs are estimated at 6,000,000frs for the first
year, 8,000,000 frs for the second year, 10 million frs each year for the n e x t
t w o ye a r s a nd 1 5 , 0 0 0 , 00 0 e a c h f o r t he l as t t w o y e a r s. Depreciation is
estimated at one million frs each year. At the end of the 6
t h
year, buses are sold
at 2,000,000frs each. Tabah intends to borrow his capital from a local Credit
Union at 12% but added 2% for his initiative.
a) Should Tabah carryout this project? ( 16 Marks)
b) What is the IRR of the project? (4 Marks)
c) How long does it take Tabah to recover his initial capital ( 6 Marks)
d) What are the shortcomings of the capital recovery method? ( 2 Marks)
e) Why do some experts recommend the exclusion of the IRR as a decision
rule in solving an investment project problem? ( 2 Marks)
Good Luck!! Man Lep E Lep
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