Institute of Chartered Financial Analysts of India (ICFAI) University 2008 Certification Certified Financial Planner Portfolio management - Question Paper

= 2144.20 + 2305.21 + 2420.07 + 2309.37 + 3374.22 = 12553.07
replaced NPV =
Where TV = Terminal value
k = Cost of capital
n = Life of the project
IO = Initial outlay
\ replaced NPV =
= Rs. 4888.37 lakh
As the replaced NPV is more than zero so the company should accept this project.
b. replaced IRR:
Let the replaced IRR be r
then
or,
or, (1 + r) =
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or, r = (1.4102 – 1)
or, r = 41.02%
As the replaced IRR is more than the cost of capital, so the project may be recommended.
c.
Year Cash inflows PV of cash flows @ 11.95% Cumulative PV of cash flows
1 1635.80 1461.19 1461.19
2 1881.74 1501.45 2962.64
3 2113.78 1506.56 4469.20
4 2158.29 1374.08 5843.28
5 3374.22 1918.90 7762.18
Discounted pay back period = one + ( 2250.50 – 1461.19)/(2962.64 – 1461.19 )
= 1.53 years.
4.The appraisal of the institution hinges on the subsequent aspects:
i. Market
ii. tech.
iii. Financial
iv. Economic
v. Management.
Market Appraisal
The market appraisal is done basically to check whether the demand and selling price projections made by the borrower are reliable.
The appraisal includes ascertaining the current demand for the product, the demand supply gap, whether the demand is sustainable in
the long run and the likely modifications in price and quantity in the future. The appraiser tries to cross check the projections made by the
borrower with info from his own sources. Where the projections are based on a study or survey carried out by the borrower,
the appraiser tries to gauge the quality of the study or survey.
tech. Appraisal
tech. appraisal involves a critical study of the subsequent aspects:
· Location
· Land and site development
· Buildings
· Technology and manufacturing process
· Foreign collaboration
· Installed capacity
· Plant and machinery
· Raw materials
· Schedule of implementation
· Manpower requirement.
The analysis is performed by professionals experienced in the relevant fields.
Financial Appraisal
The financial analyst critically examines the subsequent to form a reasonable opinion of the financial desirability of the project:
i. Cost of the project
ii. Means of finance
iii. Projected working outcomes.
The estimated cost of the project is analyzed to ensure that:

Earning:   Approval pending.