Project Analysis and Evaluation (ECO311)
DIPET 1 in Economics - ECNT
Semester: First Semester
Level: 400
Year: 2011
T H E U NIVI E R S I T Y O F B AM E ND A
Higher Technical Teacher Training College (HTTTC)
Department of Economic Sciences
Second Semester- Examinations 2011/2012
Third Year Economics,
Project Analysis and Evaluation
NOTE: Attempt all the questions, showing all calculations where necessary. One
of the questions on 30 marks will be used as your CA marks.
QUESTION 1 (30 Marks)
i )
W h a t i s c o s t o v e r - r u n ( o n e s e n t e n c e
)
i i )
Outline three reasons for cost over-run (3 phrases)
iii) Give two reasons why we evaluate projects
iv) What do you understand by compounding and discounting (2 short
sentences)
v) Distinguish between an annuity and a perpetuity (One sentence)
Question 2 (30 Marks)
i) discounted cash flow of a project shows -25 million frs in year zero
and +15 million frs in year n. Interpret the two figures in the question
in two short phrases.
•
ii)
The Net Present Value (NPV) of a project is 61 Billion frs while the
Present Value (PV) of the project costs is 25 Billion frs. What is the PV of
the project benefits?
iii)
The. Government floats annual bonds of 125 Billion frs in order to raise
capital for its structural 'projects. If the interest rate is 16 percent per
annum. How much capital can the government raise?
iv)
Peter intends to invest the sum of 6000 FF in a project that will yield
1500 FF each year for 10 years. If the cost of capital is 20 percent,
should Peter invest in this project?
v)
In how many years will the project in (iv) above recover its initial
capital?
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,
GOOD LUCK
M A N L E P I L E P
QUESTION 3 (40 marks)
The University of Bamenda is considering the purchase of a large tractor –pulled
lawn mower. If the large mower is purchased, it will replace the hiring of
persons to mow (cut grass) with small individual gas mowers, The larger
mower will cost 5650 US Dollars and will have a Life span Of 10 years, It will
have only a negligible scrap value, which it can be ignored. It will provide a
savings of 1
,
000 US Dollars per year in mowing cost because of the labour it will
replace. If the discount rate is 12 percent
(a)
Should the University purchase the mower?
(b)
What is the internal rate of return of this project?
(c) Comment on your two answers above
(d) What two reasons would you advance for an interest rate of 12 percent to
be charged on the loan of the University?
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