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THE UNIVERSITY OF THE WEST INDIES

EXAMINA nONS OF DECEMBER 2011

Code and Name of Course: PRMG6004 - PROJECT ACCOUNTING & FINANCE Paper:

Date and Time: tJ.eJn es.ot~ (Lt- '[)~ ~ bv 2- 0 II 1r (Y1 Duration: 2 HOURS

INSTRUCTIONS TO CANDIDATES: TIlis paper has t pages and 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 commercialopportunities into a new business, product or service.

Required:

(a) Briefly state the components of a Business model that should be used in idea selection [4 Marks]and offer potential sources of ideas.

(b) Illustrate the application of a venture screening methods or multiple criteria screeningmethods for project selection. [4 Marks]

(c) In the Business plan, state the risks and opportunities that you considered in the project. [4 Marks]

(d) Illustrate the Breakeven Analysis that you applied to your venture. [4 Marks]

(e) Illustrate the initial Balance Sheet for your entrepreneurial venture that can qualify forthe proposed 10% corporation tax based on $5 million capital in equity. [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 ofthe entity over several years and discuss the information you inferred. [6 Marks}

(ii) Identify (3) significant accounting policies used in the preparation and interpretation, [4 Marks]of the financial statements.

(iii) Discuss the statement that reflect the strategic direction of the entity including twokey factors in the task environment and two key factors in the external environmentthat can impact on the future performance of the entity. [5 Marks]

(iv) State the financial risk management policies that are indicated in the annualreport of the entity that reflects Management's control of risk [5 Marks]

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Page 3

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3. A standard methodology of "initiating" a project requires the following imputs:

A. (i) Source and origin of the project.(ii) Justification of the project. '(iii) Project Objectives(iv) Project Scope and Product Scope(v) Time, Cost and Quality requirements (as specific as possible).

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Required:

Use your pursuit of the MSc. Project Management programme as your project toIllustrate the methodology ..

(i)~ (ii)

Reserves (Contingent, Management)Life Cycle Costing

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[14 Marks]\\,

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"[6 Marks]

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B. Illustrate and explain the meaning and use of the following principles and tools andtechniques of cost management.

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SECTIONB <,

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

InvestmentPlant LiftDepreciationSalesVariable CostFixed Operating Cost. ' --.....I

Tax Rate "-Initial Working Capital" .. ~

$22MlO.yrs I' -\. J .straightJine toward a zero salvage value$'lOM per year /' V?O%.~I· ~$lM30%$3M

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(i) Determine the NPV profile and IRR ojthe investment project.

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[8.Ma~kls] :,• '<, ' J

Perform a sensitivity analysis and scenario analysis, ,\ ' '-,[,8,Marks]! \~\

Plan a financial strategy based on long term debt and equity and costs of capital from '\,the respective sources. ' \.: j4 Marks]'y

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Required:

(ii)

(iii)

(c)Thp Tlnivercirv of the Wp.st Indies Course Code PRMG6004 DECEMBER 2011

Page 4;~

An existing enterprise shows the following data:

Net Operating Income $3M per yearTax Rate 30%Current Equipment is fully depreciated and has to be replaced by new equipment at aCost of $20M with an economic life of 10 years and an increase of initial workingCapital of $2M.

The return on unlevered equity is 12%. The enterprise will seek a long term loan at a cost of10% to finance 50% of the equipment cost.

The annual cash flows are not expected to increase over the life of the project.

Required:

A. Use the APV model to estimate enterprise value. [12 Marks]

B. Explain the use and measurement issues of enterprise valuation ratios andspecial conditions of use based on the following:

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(i) EBITDA(ii) Firm Free Cash Flows(iii) Sales

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[8 Marks]

END OF PAPER

P TTni"l'r<:itv of the WP.<;t Indies Course Code PRMG6004 DECEl'v1BER 2011