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THE UNIVERSITY OF THE WEST INDIES

EXAMINA nONS

OF DECEMBER 2011

Code and Name of Course: PRMG6004 - PROJECT ACCOUNTING & FINANCE Date and Time: INSTRUCTIONS

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TO CANDIDATES:

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Paper: (Y1 Duration: 2 HOURS

5 questions.

ANSWER THREE (3) QUESTIONS, INCLUDE ONE QUESTION FROM EACH SECTION

[SEE TABLES ATTACHED]

The University of the West Indies

Course Code PRMG6004

DECEMBER

2011

SECTION A 1. You were a member of a group who were engaged in searching for ideas for developing commercial opportunities into a new business, product or service. Required: (a) Briefly state the components of a Business model that should be used in idea selection and offer potential sources of ideas. Illustrate the application of a venture screening methods or multiple criteria screening methods for project selection. [4 Marks]

(b)

[4 Marks]

(c) (d) (e)

In the Business plan, state the risks and opportunities that you considered in the project. [4 Marks] Illustrate the Breakeven Analysis that you applied to your venture. Illustrate the initial Balance Sheet for your entrepreneurial venture that can qualify for the proposed 10% corporation tax based on $5 million capital in equity. [4 Marks]

[4 Marks]

2.

You have analysed and evaluated the performance of an entity (company, credit union, etc. over a number of years based on data an Information provided in the Annual Reports. (i) Explain the methods you used in analyzing and evaluating the financial statements of the entity over several years and discuss the information you inferred.

[6 Marks}

(ii)

Identify (3) significant accounting policies used in the preparation and interpretation, of the financial statements. Discuss the statement that reflect the strategic direction of the entity including two key factors in the task environment and two key factors in the external environment that can impact on the future performance of the entity. State the financial risk management policies that are indicated in the annual report of the entity that reflects Management's control of risk

[4 Marks]

(iii)

[5 Marks]

(iv)

[5 Marks]

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3.

A standard methodology of "initiating" a project requires the following imputs: A. (i) (ii) (iii) (iv) (v) Source and origin of the project. Justification of the project. ' Project Objectives Project Scope and Product Scope Time, Cost and Quality requirements (as specific as possible).

Required: Use your pursuit of the MSc. Project Management programme as your project to Illustrate the methodology ..
B.

[14 Marks]
.

Illustrate and explain the meaning and use of the following principles and tools and techniques of cost management. (i) ~ (ii) Reserves (Contingent, Management) Life Cycle Costing
i [6 Marks]

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SECTIONB
The following data is being considered fo~ a new ~lant in the industrial sect0(,'

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$22M Investment l O.yrs I' Plant Lift \. J . straightJine toward a zero salvage value Depreciation $'lOM year /' V Sales ?O%.~I ~ Variable Cost Fixed Operating Cost. ' --..... $lM 30% Tax Rate "Initial Working Capital" .. ~ $3M

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Required: (i) (ii) (iii) Determine the NPV profile and IRR ojthe investment project.
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Perform a sensitivity analysis and scenario analysis,

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Plan a financial strategy based on long term debt and equity and costs of capital from the respective sources. ' \.:
Course Code PRMG6004 DECEMBER 2011

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j4 Marks]

(c) Thp Tlnivercirv of the Wp.st Indies

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An existing enterprise shows the following data: Net Operating Income $3M per year Tax Rate 30% Current Equipment is fully depreciated and has to be replaced by new equipment at a Cost of $20M with an economic life of 10 years and an increase of initial working Capital of $2M. The return on unlevered equity is 12%. The enterprise will seek a long term loan at a cost of 10% to finance 50% of the equipment cost. The annual cash flows are not expected to increase over the life of the project.

Required: A. B. Use the APV model to estimate enterprise value. Explain the use and measurement issues of enterprise valuation ratios and special conditions of use based on the following: (i) (ii) (iii) EBITDA Firm Free Cash Flows Sales
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[12 Marks]

[8 Marks]

END OF PAPER

TTni"l'r<:itv

of

the

WP.<;t

Indies

Course Code PRMG6004

DECEl'v1BER

2011