Mid-Semester Examination

MBA (WP) III SEMESTER

SUBJECT: Project Management
25 Maximum Marks

SECTION A
ANSWER ANY THREE QUESTIONS: (2*3=6)
1. Mention the attributes of a good project management.
2. Mention the advantages of Break-even analysis.
3. Explain the concept of shadow pricing with an example
4. Distinguish between Risk adjusted discount rate and Certainty equivalent coefficient with reference to
project management.

SECTION B
ANSWER ANY TWO OF QUESTIONS: (5*2=10)
1. A firm is considering 4 alternatives locations for a new plant. It has attempted to study all costs at the
various locations P, Q, R and S and found that the production costs of the following items vary from one
location to another. The firm will finance the new plant from capital which attracts 10% interest

Data Locations
P Q R S
Labour cost per unit 0.75 1.10 0.80 0.90
Plant construction 45 35 38 68
(Rs in Lakh)
Material cost per 0.47 0.62 0.42 0.53
unit
Electricity charges 30,000 26,500 29,500 28,000
per year
Water charges per 7,500 6,250 7,750 6,750
year
Transportation cost 0.02 0.21 0.15 0.25
per year
Taxes per year 33,000 28,000 63,000 35,000
Determine the most suitable location for output volumes in the range of 50,000 units to1,00,000 units
2. ABC company limited proposes to start it new venture for the manufacture of fluorescent bulbs. The
estimates of the new venture are as under:
 Output of bulbs per annum: : 5,00,000 unit
Expected sales revenues per annum : 2,50,00,000 unit
Fixed costs : Rs 55,00,000
Variable costs : Rs 75,00,000
a) If the selling price comes down to Rs 40.00 per unit, find out its effect on BEP?
b) If the fixed cost increases to Rs 65,00,000. Find out its effect on BEP
c) If the variable cost increases by 15%, find out its effect on BEP?

3. Delta Corporation is considering an investment in one of the two mutually exclusive proposals
Project A – It involves initial outlay of Rs 1,70,000
Project B- It requires an initial outlay of Rs 1,50,000
The certainty equivalent approach is employed in evaluating risky investments. The current yield on
treasury bills is 5% and the company uses this as riskless rate. Expected values of net cash inflows with
their respective certainty equivalents are
Project A Project B
Year Cash Inflow(Rs) Certainty Cash Inflow (Rs) Certainty
Equivalent Equivalent
1 90,000 0.8 90,000 0.9
2 1,00,000 0.7 90,000 0.8
3 1,10,000 0.5 1,00,000 0.6
Answer the following with reasons
i. Which project should be acceptable to the company
ii. Which project is riskier and why? Explain
iii. If the company was to use the risk-adjusted discount rate method. Which project would be
analyzed with higher rate?
SECTION C
ANSWER ANY ONE (1*9=9)
1. ABS Caterers
ABS Caterers operate from the Green park area of Hauz Khas in New Delhi. Green Park is a posh locality
in South Delhi and has a large number of restaurants serving the needs of the people in the locality.
Though ABS has its main operators at Green park, its also deals with the catering needs of educational
institutions. ABS bagged the contract for catering in a well-known educational institution in south Delhi a
few years back. They are responsible for catering of the students and staff at the campus.
Campus Operations
At present ABS has two units operating in the campus “Green View”, which is on the seventh floor of the
main academic building, and the second one, “ABS café”, which is in the heart of the hostel zone. Green
View operates between 10 a.m and 5 p.m during weekdays (Mon-Fri). It caters to the needs of the entire
office crowd, students, teaching and the non-teaching staff. ABS Café operates between 4 pm and
midnight on a daily basis and is mostly visited by students.
Though ABS has its main operation at Green Park, Mr Jain, the proprietor of ABS Caterers, considers the
campus catering contract to be important. There are quite a few educational institutions around.
Jawaharlal Nehru University is near the campus. If ABS can prove its worth in their current operations, it
is only a matter of time, according to Mr Jain, before they get contracts at other nearby institutions. This
would mean a lot in terms of his business volumes.
At present, the volume of business at the campus is not substantial compared to the overall business of
ABS, but the situation has certainly improved ever since ABS took over a few years back. ABS has
registered a steady 20% increase in sales and expects it to go up even further. This is primarily because
ABS has been consistently maintaining a low price for its items.
Though the campus operations started with a small variety of food, ABS introduces new items whenever
there is a demand for them. For example, two new South Indian dishes-Mysore Masala Dosa and Onion
Uthappam-were introduced recently. They are now available only between 11 a.m and 3 p.m. The
management expects to introduce new items in the coming months. Serving a typical meal request
takes
nearly 20 minutes of one worker’s time.
ABS has a group of service personnel and two managers who take care of the needs of the two center’s.
The service personnel can move from one restaurant to another (i.e from Green View to ABS Café and
vice versa), if they need arises. In any case, the restaurants are not too far and they will not object this.
At
present, the timings of the two centres are overlapping only between 4 p.m and 5 p.m. Hence, resources
management has not been a serious problem.
Future Plans
The immediate plan of Mr Jain is to keep ABS Café opens between 1 pm and midnight. This would mean
an additional three hours of service timing and overlap with Green View. He believes that this new
arrangement will not only facilitate the students, but also increase his volume of business. However, Mr
Jain has vast experience in the catering industry and particularly in an academic set-up. He has observed
some patterns in the arrival of customers at the restaurants. The table below is a sample of his
observations for the month of September 2017.
Questions for Discussions
(a) What are the potential advantages of forecasting requirements for the campus operations of ABS
Caterers?
(b) If Mr Jain wishes to develop a forecasting model, develop an overall framework for the same.
(c) How should Mr Jain plan his weekly plan for deploying resources requirement requirements? Can
you estimate the number of service personnel that he needs?
Number of customers Served During September 2020

2. A Company is evaluating two mutually exclusive projects A and B. Project A costs Rs 50,000 and
project B Rs 55,000. The probability distribution as also the likely NPVs for each of these projects is
furnished below:

Project A Project B
NPV Probability NPV Probability
14,000 0.1 18,000 0.2
18,000 0.2 25,000 0.5
25,000 0.3 35,000 0.2
40,000 0.4 48,000 0.1
Determine:

i) Expected NPV of the two projects

ii) Risk attached to each of these projects
iii) Which project would you prefer and why?
iv) Compute the profitability Index of each project?

3. The Oil India corporation (OIC) is wondering whether to go for an offshore oil drilling contract that is
to be awarded in Bombay High. If OIC bid, value would be Rs 600 million with a 65% chance of getting
the contract. The OIC may set up a new drilling operation or more the already existing operation, which
has already proved successful for a new one. The probability of success and expected returns are as
follows:
Outcome New Drilling Operations Existing Operations
Probability Expected Revenue Probability Expected Revenue
Success 0.75 800 0.85 700
Failure 0.25 200 0.15 350
If the corporation do not bid or lose the contract, they can use Rs 600 million to modernize their
operation. This would result in a return of either 5% or 8% on the sum invested with probabilities 0.45
and 0.55. (a) Construct a decision tree for the problem (b) By applying an appropriate decision criterion
recommend whether or not the oil India corporation should bid the contract.