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PROJECT MANAGEMENT
CASE STUDY : 1
Anand Enterprises is broadly diversified company
with presence in a variety of sectors such as cement, textile, chemicals. After
a thorough review of various capital projects undertaken in the last 5 years
the executive committee of Anand Enterprises felt that the quality of market and
demand analysis of most of the projects was somewhat
patchy. As a marketing analyst you have been
invited by Arvind Swami, the managing director of Anand Enterprise, to do a
seminar on market and demand analysis for the business heads of the company.
Among other things, he wants you to address the following issues.
Q1) How should one evaluate secondary
information?
Q2) What are the sources of undertainities in
demand?
Q3) Discuss the steps in a sample survey?
Q4) Briefly describe the various methods of demand
forecasting?
CASE STUDY : 2
Sagar Ltd is a leading manufacturer of
automotive components. It supplies to the original equipment manufacturers as
well as the replacement market. Its projects typically have a short life as it
introduces new models periodically. You have recently joined the company as a
financial analyst reporting to Shekhar Dhawal, the CEO of the
company. He has provided you the following
information about three projects A, B & C they are being considered by the
Executive Committee of Sagar Ltd.
a) Project A is an extension of an existing
line. Its cash fund will decrease over time.
b) Project B involves a new product. Building
its market will take some time and hence its cash flow will increase over time.
c) Project C is concerned with sponsoring a
pavilion at a Trade Fair. It will entail a cost initially which will be
followed by a huge benefit for one year. However, in the year following that a
substantial cost will be incurred to raze the pavilion.
The expected net cash flows of the 3 projects
are as follows :-
Year Project A Project B Project C
0 (5000) (5000) (5000)
1 3500 1000 15000
2 2500 3000 (10000)
3 1500 4000
Shekhar Dhawal believes that all the 3 projects
have risk characteristics similar to the average risk of the firm and hence the
firm’s cost of capital viz. 12% will apply to them.
Q1) What is payback period and discounted
Payback period?
Q2) Find the payback periods and the discounted
payback periods of Projects A & B?
Q3) What is the Net Present Value (NPV)? What
are properties of NPV? Calculate the NPV’s of Projects A, B & C?
Q4) What is internal rate of return (IRR)? What
are the problems with IRR? Calculate the IRRs for A, B & C?
CASE STUDY : 3
A project consists of 12 activities and their
time estimates are shown below.
Activity Time (in weeks)
ta tm Tp
(1–2) 4 6 10
(1–3) 3 7 12
(1–4) 5 6 9
(1–7) 2 4 6
(2–4) 6 10 20
(2–6) 3 4 7
Q1) Draw the network diagram?
Q2) Determine the critical path?
Q3) Calculate event slacks and activity floats?
Q4) Find the standard deviation of the critical
path duration?
Q5) Compute the probability of completing the
project in 30 weeks?
CASE STUDY : 4
Microelectronics Corporation is currently at its
target debt equity ratio of 5:1. It is considering a proposal to expand
capacity, which is expected to cost Rs 500 million and generate after tax cash
flows of Rs 130 million per year for the next 8 years. The tax rate for the
firm is 30 percent. Mahesh the CEO of the company, has considered two financing
options.
a) Issue of equity stock. The required return on
the company’s new equity is 20 per cent and the issuance cost will be 12 per
cent.
b) Issue of debentures at a yield of 13 percent.
The issuance cost will be 3 per cent.
Q1) What is the WACC for Micro-electronics?
Q2) What is Microelectronic’s weighted average
flotation cost?
Q3) What is the NPV of the proposal after taking
into account the flotation costs?
Q4) Do you have any suggestion to Mahesh?
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