TANZANIA INSTITUTE OF ACCOUNTANCY

(TIA)
COURSE: BBA 3 & BMPR 3 (F/TIME & EVENING 2022/2023)
SUBJECT: PROJECT MANAGEMENT
CODES: BAU08108
TOPIC 4: USE APPRAISAL TECHNIQUES IN PROJECT EVALUATION
LECTURER: DR. ANICETH KATO MPANJU
REVIEW QUESTIONS

QUESTION 1
A car manufacturer has decided to make a significant investment into expanding its
presence in Africa by setting up a large assembly facility in Tanzania. It has estimated its
initial set up costs to be in the region of Tanzania Shillings 2,500 million.
Forecast net income from the project is detailed below:
Year 1: Tanzania Shilling 1,000 million
Year 2: Tanzania Shilling 1,000 million
Year 3: Tanzania Shilling 1,000 million
Cash is freely available at the company’s cost of capital of 10%
Required:
Calculate the Net Present Value of the project and comment on the attractiveness of the
project.

QUESTION 2
Kurasini Industrial Investments plc. is considering to expand its presence in the lake
region by setting up a large machinery manufacturing facility in Mwanza. It has estimated
its initial set up costs to be in the region of Tanzania Shillings 1,000 million.
Forecast net income from the project is detailed below:
Year 1: Tanzania Shilling 100 million
Year 2: Tanzania Shilling 1,400 million
Year 3: Tanzania Shilling –

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Required:
Calculate the Net Present Value of the project using a discount factor of 10% and
comment on the attractiveness of the project.

QUESTION 3
Linq Pharmaceuticals plc. is considering to expand its presence in the East African
Community (EAC) region by setting up a large pharmaceutical facility in Bagamoyo. It has
estimated its initial set up costs to be in the region of Tanzania Shillings 1,500 million.
Forecast net income from the project is detailed below:

Year 1: Tanzania Shilling 150 million

Year 2: Tanzania Shilling 1,350 million
Year 3: Tanzania Shilling 150 million
Year 4: Tanzania Shilling (150) million
Year 5: Tanzania Shilling (600) million
Required:
Assume a discount rate of 10%, calculate the projected payback period and discounted
payback period for the project to the nearest month.

QUESTION 4
A television manufacturer has decided to make a significant investment into expanding
its presence in Africa by setting up a large assembly facility in Tanzania. It has estimated
its initial set up costs to be in the region of Tanzania Shillings 1,500 million.

Forecast net income from the project is detailed below:

Year 1: Tanzania Shilling 150 million

Year 2: Tanzania Shilling 300 million
Year 3: Tanzania Shilling 450 million
Year 4: Tanzania Shilling 600 million
Year 5: Tanzania Shilling 1875 million

Cash is freely available at the company’s cost of capital of 10%

Required:

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Calculate the projected payback period and discounted payback period for the project to
the nearest month.

QUESTION 5
LucAn Bakeries is considering to expand its presence in central zone by setting up a
facility in Morogoro region. An investment of Tshs 5,000,000 is expected to produce a
constant annual cash flow of Tshs 1,716,000 for the next four years.
Required:
Calculate the internal rate of return on the project.

QUESTION 6
ABC Industries is considering to expand its presence in southern highlands zone by
setting up a facility in Mbeya region. Expenditure of Tshs 10,000,000 on a new packing
machine is expected to produce annual cost savings over a working life of five years of
Tshs 3,050,000.

Required:
Calculate the internal rate of return on the project.

QUESTION 7
XYZ Shoe Maker is considering to expand its facility. It has estimated its initial set up
costs to be in the region of Tanzania Shillings 10 million.
Forecast net income from the project is detailed below:

Year 1: Tanzania Shilling 1 million

Year 2: Tanzania Shilling 14 million
Year 3: Tanzania Shilling 0 million

Required:
Estimate the internal rate of return (IRR) of the project.

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QUESTION 8
LucAni International is considering investing in two projects – A and B. The initial outlay,
annual cash flows, and annual depreciation for each asset is shown in the table below for
asset’s assumed five-year lives. As can be seen, LucAni will use straight-line depreciation
over each asset’s five-year life. The firm requires a 12% return on each of those equally
risky assets. LucAni’s maximum payback period is 2.5 years; its maximum discounted
payback period is 3.25 years’ and its minimum accounting rate of return is 30%.
Figures in TZS Million________________________
Project A Project B
Initial Outlay ( CF0 ) TZS200,000 TZS180,000

Year (t) Cash Flow ( CFt ) Depreciation Cash Flow ( CFt ) Depreciation

1 TZS 70,000 TZS 40,000 TZS 80,000 TZS 36,000

2 80,000 40,000 90,000 36,000
3 90,000 40,000 30,000 36,000
4 90,000 40,000 40,000 36,000
5 100,000 40,000 40,000 36,000
REQUIRED:
a. Calculate the accounting rate of return from each asset, assess its acceptability,
and indicate which asset is best using the accounting rate of return
b. Calculate the payback period for each asset, assess its acceptability, and indicate
which asset is best using the payback period.
c. Calculate the discounted payback period for each asset, assess its acceptability,
and indicate which asset is best using the discounted payback.
d. Compute and contrast your findings in parts a, b, and c. Which asset would you
recommend to LucAni, assuming that they are mutually exclusive? Why?

QUESTION 9
Temeke Mining Corporation Limited (TMCL) is contemplating purchasing a new mining
equipment for its mine project in Shinyanga. It is expected to cost TZS200,000,000.
Further, the company estimates TZS20,000,000 as maintenance cost for each year of its
operation. Owing to the rapid technological development in the mining equipment and
machineries industry, the company anticipates using the current model for 5 years only
and then selling it for TZS40,000,000. The projected gross cash inflows from the
proposed investment projects are as follows for each year of operation:

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Year 1 2 3 4 5
Gross Cash inflows (TZS) 50,000,000 80,000,000 100,000,000 80,000,000 60,000,000

REQUIRED:
Assuming the company uses the straight line method of depreciation where depreciation
is TZS32,000,000, the company’s required rate of return is 12% and its ordinary tax rate
is 55%, advise whether the project should be accepted or rejected.