PART-A 1. 2. 3. 4. 5. 6. 7. What is meant by capital budgeting? What are the types of investment decisions? Give examples.

Explain IRR and write the acceptance rule for NPV. Explain the significance of information in project selection. What are the types of capital rationing? Differentiate business risk from financial risk? Define project management.

8. Difference between project investment management and project management? 9. What are the types of Disinvestment?

10. What are the classifications of Project?

11.What is meant by co-efficient of variation? 12.Define the term portfolio risk? 13.What is meant by operating risk? 14.Define the term capital rationing. 15.Distinguish between capital rationing and portfolio risk? 16.Compare risk adjusted discount rate with certainity equivalent approach. 17.A company is considering selecting one of the 2 mutually exclusive projects ,A and B.The following information is given . Project A Expected cash flow Standard deviation Which one should be selected ? why? 18.What are the various types of investments and disinvestments? 19.List out the types of diversification strategies. 20.Compare scenario analysis with sensitivity analysis. PART-B project B

1. Discuss the essentials of profitable project management.

2. Desribe in depth the various methods of evaluating investment opportunities

of a firm with their respective pros and cons and with illustrations.

3. Explain in depth the importance of information and data bank in project

selections by a firm.

4. A Corporation is considering an investment in one of the two mutually

exclusive proposals: project A which involves an initial outlay of Rs.170000 and project B which has an outlay of Rs.150000. The certainty equivalent approach is employed in evaluating risky investments. The current yield on treasury bills is 0.05 and the company uses this as the riskless rate. The expected values of net cash flows with their respective certainty equivalents are: YEAR PROJECT A Cash flow Rs.000 1 2 3 90 100 110 Certainty equivale nt 0.8 0.7 0.5 PROJECT B Cash flow Rs.000 90 90 100 Certaint yequivale nt 0.9 0.8 0.6

A) Which project should be acceptable to the company? B) Which project is riskier?

5. Jiva products ltd has Rs.350000 for capital expenditure during the year 2012.
The following proposals have been shortlisted for consideration and selection. Project A B C D E Cost 100000 150000 70000 40000 60000 NPV 11000 16000 3000 3000 4000 PI 1.1 1.106 1.04 1.075 1.067

Select the best combination in order to maximize wealth of the shareholders given that all projects are divisible if a) All projects are independent and

b) Projects D & E are mutually exclusive but all others are independent

6. Measuring portfolio return and portfolio risk for two asset case 7. A company has made the following estimate of the CFAT associated with an
investment proposal the company intends to use decision tree to get a clear picture of the projects cash inflows. The project has an expected life of 2 years. The first years cash flow is either 25000(probability=0.4) or 30000(probability=0.6).if first year CFAt is RS.25000 then the second year CFAT will be either 12000(p=0.2) or 16000(p=0.3) or 22000(p=0.5). If the first year CFAT is Rs.30000 then the second year CFAT will be either 20000(p=0.4) or 25000 (p=0.5) or30000(p=0.1).The cost of the equipment is Rs.40000 and the cost of capital is 10%. Construct a decision tree for the proposed project. What will be the project NPV. Also find the project NPV under the worst case and the best case and also find the probability associated with it. Projects A B C D C0 -10000 -10000 -10000 -10000 C1 100 00 750 0 200 0 100 00 750 0 400 0 300 0 1200 0 3000 C2 C3

8. Alpha company is considering the following investment projects:

Rank the projects according to each of the following methods: Payback,ARR,IRR and NPV, assuming discount rates of 10% and 30%

10% 30%

0.909 0.683 0.769 0.350

0.826 0.592

0.751 0.455

9. A company has Rs. 7 crore available for investment. It has evaluated its
options and has found that only 4 investment projects given below have positive NPV. All these investments are divisible . Advise the management which projects should select.
Project X Y Z W Initial investment(Rs.in crore) 3.00 2.00 2.50 6.00 NPV (Rs.in crore) 0.60 0.50 1.50 1.80 PI 1.20 1.25 1.60 1.30

10. X ltd is considering a project with the following cash flows: Year 0 1 2 purchase of plant -7000 2000 2500 6000 7000 running cost savings

The cost of capital is 8% . Measure the sensitivity of the project to changes in the plant value, running cost and savings such that NPV becomes zero.Which factor is most sensitive to affect the acceptability of the project?

10. a)What is sensitivity analysis? What are the advantages and disadvantages?
B)What is simulation analysis ? what are the steps involved in simulation?state the limitations.

11.