Questions for Project Management Subject

Question 1 Case Study – Compulsory

1. A company with a 10% cost of funds and limited investment of Rs. 160 lakhs are evaluating the
desirability of several investment proposals:
Initial investment Life Annual Cash flow
Project
(in lakhs of Rs.) (years) (in lakhs of Rs.)
P 240 5 60
Q 160 3 64
R 160 4 50
i. Rank the projects according to the profitability index and NPV methods
ii. Determine the optimal investment package.
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2. For a project with the given data, calculate the internal rate of returns.
Yea Cash outflow Cash inflow
r
0 Rs.5,00,000
1 Rs. 2,00,000
2 Rs. 1,25,000
3 Rs. 1,25,000
4 Rs. 1,00,000
5 Rs. 1,00,000
6 Rs. 75,000
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3. An organization is considering 3 options for a project with the expected cash flows
for each option as follows:
Year Option-1 Option-2 Option-3
0 (5,00,000) (5,00,000) (5,00,000)
1 2,50,000 50,000 50,000
2 2,50,000 50,000 2,50,000
3 50,000 2,50,000 2,00,000
4 50,000 1,50,000 3,50,000
5 50,000 5,00,000 50,000
i. Rank the options based on pay-back period.
ii. Assuming the organization’s cost of capital as 10%, rank the options by NPV
method.
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 4. An organization is considering 3 options for a project with the expected cash flows
for each option as follows:
Year Option-1 Option-2 Option-3
0 (10,00,000
) (10,00,000) (10,00,000)
1 5,00,000 1,00,000 1,00,000
2 5,00,000 1,00,000 5,00,000
3 1,00,000 5,00,000 4,00,000
4 1,00,000 3,00,000 7,00,000
5 1,00,000 1,00,000 1,00,000

i. Rank the options based on pay-back period.

ii. Assuming the organization’s cost of capital as 10%, rank the options by NPV method.
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5. ABC Ltd. has estimated following cash flows for a project:

Year 1 2 3 4 5
Cash inflows before depreciation & tax (Rs.) 10,000 8,000 4,000 10,000 10,000

Initial Investment : Rs. 20,000

Life time of the project : 5 Years
Required rate of return : 10%
Tax rate : 5%
The project will be depreciated on straight line method.
Find out Net Present Value & Profitability Index.
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6. A Company is considering four proposals for investment and the ten-year funds
flow/cash inflow is as given in the following table. Use payback period criteria and
the NPV method criteria, advise the company on the best course of action. Discount
rate is 14%.
Proposal Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
A -200 40 40 40 40 40 40 40 40 40 40
B -300 40 40 40 40 40 30 30 20 20 20
C -210 80 50 80 60 80 50 40 40 40 40
20
D -320 20 0 0 0 0 0 0 200 50
0
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7. A company is engaged in evaluating an investment project which requires an initial cash
outlay of Rs. 2,50,000 on equipment. The project’s economic life is 10 years and its
salvage value Rs. 30,000. It would require current assets of Rs. 50,000. An additional
investment of Rs. 60,000 would also be necessary at the end of five years to restore the
efficiency of the equipment. This would be written off completely over the last five years.
The project is expected to yield annual (before tax) cash inflow of Rs. 1,00,000. The
 company follows the sum of the years’ digit method of depreciation. Income – tax rate is
assumed to be 40%. Should the project be accepted if the minimum required rate is 20%?

Note: PVs of Re. 1 at 20% discount rate are as follows:

Year 1 2 3 4 5 6 7 8 9 10
PVF 0.833 0.69 0.579 0.482 0.40 0.355 0.279 0.233 0.19 0.162
4 2 4
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8. Your company is considering two mutually exclusive projects A and B. Project A
involves an outlay of Rs. 100 million and will generate an expected cash inflow of Rs.
25 million per year for 6 years. Project B calls for an outlay of Rs. 50 million which
will produce an expected cash inflow of Rs.13 million per year for 6 years. The
company’s cost of capital is 12%. Suggest with appropriate reasons your choice of
the project.
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9. Following table represents data related to a project where the investment is Rs.
40,000.
Year 1 2 3 4 5
PBDIT 10,000 13,000 18,000 20,000 20,000
Depreciation 2,000 2,000 2,000 2,000 2,000
Interest 3,000 3,000 3,000 2,000 1,000
Principal
---- ---- ---- 10,000 10,000
Repayment
Find out Debt Service Cover Ratio for each year if the applicable tax rate is 30%.
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10. Following table represents data related to a project where the investment is Rs.
50,000.
Year 1 2 3 4 5
PBDIT 13,000 16,000 21,000 23,000 23,000
Depreciation 2,500 2,500 2,500 2,500 2,500
Interest 4,000 3,750 3,500 3,000 1,500
Principal
---- ---- ---- 14,000 14,000
Repayment

Find out Debt Service Cover Ratio for each year if the applicable tax rate is 30%.

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11. Compare projects A and B using the given data. Use NPV method of evaluation.
Project – A
Investment on the project : Rs. 10,00,000/-
Life of project : 5 years
Period of implementation : 1 year
 Cost of Capital : 15%.

Year 1 2 3 4 5
2,00,00 3,00,00
Cash inflow 3,00,000 4,00,000 1,00,000
0 0

Project – B
Investment on the project : Rs. 10,00,000/-
Life of project : 5 years
Period of implementation : 1 year
Cost of Capital : 13%

Year 1 2 3 4 5
4,00,00
Cash inflow 3,00,000 4,00,000 3,00,000 2,00,000
0
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12. Compare projects A and B using the given data. Use NPV method of evaluation.
Project – A
Investment on the project : Rs. 5,00,000/-
Life of project : 5 years
Period of implementation : 1 year
Cost of Capital : 15%.
Year 1 2 3 4 5
Cash 2,00,00
1,00,000 1,50,000 1,50,000 50,000
inflow 0

Project – B
Investment on the project : Rs. 5,00,000/-
Life of project : 5 years
Period of implementation : 1 year
Cost of Capital : 13%
Year 1 2 3 4 5
1,50,00 1,50,00
Cash inflow 2,00,000 2,00,000 1,00,000
0 0
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13. Calculate NPV if initial investment in a project is Rs. 250 Lakhs and cash inflow for
subsequent years are Rs. 25 Lakhs, Rs. 37.5 Lakhs, Rs. 62.5 Lakhs, Rs. 112.5 Lakhs &
Rs. 150 Lakhs. Assume rate of discounting as 10% per annum.
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14. From the following data pertaining to a project, calculate Internal Rate of Return.

Year 0 1 2 3 4 5
Cash Flow (Rs.) (31,000 15,000 12,000 9,000 6,000 3,000
)
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 15. A project involves an initial outlay of Rs. 50,000 and expected to generate a stream of
annual cash inflows of Rs. 12,500 for 5 years. Calculate the internal rate of return.
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16. An organization has estimated following while assessing various options for a
project:
Cost = Rs. 11,000/-
Cash inflows for year 1, year 2, year 3 & year 4 are Rs. 6,000, Rs. 2,000, Rs. 1,000 & Rs. 5,000
respectively. Find out internal rate of return.
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17. Calculate discounted pay – back period for a project from the following details given
below –
Cost of the Project = Rs. 8,00,000
Life of the project = 7 Years
Annual Cash inflow = Rs. 2,00,000
Cut-off Rate = 10%
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18. Initial investment in a project is Rs. 10,00,000. Its cost of capital is 10%. The cash
inflows generated by this project for next 5 years are as follows.

Year 1 2 3 4 5
Cash Inflows (Rs.) 6,00,000 3,00,000 2,00,000 5,00,000 5,00,000

Determine: i) Payback period

ii) Post payback profitability
iii) Net present value
iv) Discounted payback period
v) Profitability index
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19. The initial outlay of a project is Rs. 50,000 and it generates cash inflows of Rs. 20,000;
Rs. 15,000; Rs. 25,000 and Rs. 10,000 in four years. Using present value index method,
appraise profitability of the proposed investment assuming 10% rate of discount.
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20. The following data details are known about a project when the project review was
conducted.
% Completion Cost in Rs. Lakhs
Activity
Scheduled Actual Budgeted Actual
1 100 100 10.0 12.0
2 100 100 12.0 12.5
3 70 60 18.0 12.0
4 55 50 25.0 13.0
5 30 25 20.0 6.0
6 10 0 15.0 0
7 0 0 10.0 0
8 0 0 8.5 0
9 0 0 6.5 0
10 0 0 5.0 0
 The project is expected to be completed in 35 days. Find
i. BCWS i.e., Budgeted cost for work scheduled
ii. BCWP i.e., Budgeted cost for work performed
iii. Cost Variance
iv. CPI
v. SPI
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21. A project has a budget of Rs. 5,00,000/- and is scheduled to be completed in one
year. The following table shows cumulative values of planned costs, earned value
and actual costs at the end of each of the first four months.
Planned
Month Earned Value Actual Cost
Cost
1 20,000 24,000 23,500
2 60,000 58,000 62,000
3 1,10,000 95,000 1,05,000
4 2,20,000 1,90,000 2,05,000
Calculate the following values:
i. Cost Performance Index (CPI) for each of the four months.
ii. Schedule Performance Index (SPI) for each of the four months.
iii. Estimated cost to complete the project based on the performance at the end of the
fourth month.
iv. Estimated time to complete the project based on performance at the end of the
fourth month.
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22. A project is estimated to cost Rs. 7,00,000 with a timeline of 60 days. The Manager
while preparing the dashboard fills the following information -
Days Consumed = 50%
Project Completion Status = 40%
Actual costs spent so for are Rs. 2,10,000
Calculate critical ratio for the project.
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23. Following table lists the various details of project activities.

Duration in weeks
Activity Predecessor

A … 13 22 25
B … 19 20 27
C … 7 10 19
D A 5 14 35
E B 7 8 27
F B 3 4 11
G C 5 12 19
H B 11 14 23
I F, G 5 8 17
J D, E 9 16 41
 i. Draw the network and find the Critical Path & Critical Time of the project.
ii. Compute Total Float for all activities.
iii. Find the probability that the project will be completed in 60 weeks.

Z value 0.52
Area under normal curve 0.1985

24. Following table lists the various details of project activities.

Duration in weeks
Activity Predecessor

A … 13 22 25
B … 19 20 27
C … 7 10 19
D A 5 14 35
E B 7 8 27
F B 3 4 11
G C 5 12 19
H B 11 14 23
I F, G 5 8 17
J D, E 9 16 41
i. Draw the network and find the Critical Path & Critical Time of the project.
ii. Compute Total Float for all activities.
iii. Find the probability that the project will be completed in 60 weeks.
Z value 0.52
Area under normal curve 0.1985

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25. The details of various activities of a project are given below.

Activity Predecessor to tm tp
A ---- 1 3 7
B ---- 1 2 4
C A 2 4 8
D A 2 5 11
E B 3 6 12
F C,D 3 7 15
G D,E 1 4 10
 H F,G 2 6 14

i. Draw network diagram and find critical path & critical time.
ii. What will be the probability of completing the project in 5 days?
iii. Find Total Float, Free Float, Independent Float & Interference Float for all activities.
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26. A project has the following characteristics as shown in the following table:

Activity Predecessor Activity Duration (Weeks)

A … 5
B A 2
C A 6
D B 12
E D 10
F D 9
G D 5
H B 9
I C, E 1
J G 2
K F, I, J 3
L K 9
M H, G 7
N M 8
i. Draw a network using the AOA convention.
ii. Identify the critical path and the project completion time.
iii. Prepare an activity schedule showing the EST, EFT, LST and LFT for each activity.
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27. Draw the PERT Network diagram and find out the expected project completion time.
A Project Manager has made 3 points time estimates for various activities of a project.

Activit Estimated Duration (in Weeks)

y Optimistic Most Likely Pessimistic
1–2 2 2 14
1–3 2 8 14
1–4 4 4 16
2–5 2 2 2
3–5 4 10 28
4–6 4 10 10
5–6 6 12 30
6-7 2 4 6

a. Draw the PERT Network diagram and find out the expected project completion tine.
b. Calculate the project duration if the probability of project completion is to be 90%.(For 0.3997, z = 1.2
c. If there is a huge penalty for exceeding deadline of 44 weeks, what is the probability of being penali
(Area under Standard Normal Curve is 0.3389 for z = 0.99).
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28. For the following project –
Activity A B C D E F G H
Predecessor - A A B B C, D E F
Duration (in days) 4 6 2 6 3 4 1 2

Draw a network diagram. Find Critical Path and Project Completion Time. Calculate EST, EFT, LST,
LFT and Total Float for all activities.
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29. A project has the following activities –

Activity A B C D E F G H I J K
Predecessor - - - A B B C D E F, G H, I
Duration (in Weeks) 3 2 2 4 4 7 4 2 5 6 3
a. Draw a network diagram and Calculate Critical Path and Project Completion Time.
b. Compute EST, EFT, LST, LFT, Slacks and Floats of each activity.
c. Explain in detail the Work Breakdown Structure with Suitable example.
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30. Consider the details of a project as shown in the table below. The normal time in days,
normal cost, crash time in days and crash cost for each of the activities in the project are given.
The indirect cost of the project is Rs. 100.00 per day. Find the crashed duration of the project
with the optimal total cost.

Normal
Activit Normal Time Crash Time Crash Cost
Predecessor Cost
y (in days) (in days) (in Rs.)
(in Rs.)
A - 6 600 4 750
B A 5 400 4 450
C A 6 1200 3 1650
D A 7 1000 4 1360
E B 10 500 8 550
F C, E 5 800 4 910
G D 4 1500 3 1660
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31. The following table gives the activities in a construction project and other relevant
information.
Activity Immediate Time in days Cost in Rs.
predecessor Normal Crash Normal Crash
 P … 8 6 600 900
Q … 12 8 1500 2500
R … 4 2 300 600
S P 10 6 1500 2500
T R 4 4 1000 1000
U P 14 10 1150 1750
V S, Q, T 8 4 1000 2400
i. Draw an arrow diagram of the project.
ii. Determine the project duration which will result in minimum total cost, if the indirect cost
is Rs. 400/- per day.
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32. Following data is pertaining to a project:

Duration
Activity Preceding Activity
(Weeks)
A --- 5
B --- 4
C A 8
D B 4
E C,D 3
F C,D 2
G E 1
i. Draw the arrow diagram and find project completion time.
ii. Determine EST, EFT, LST & LFT for all activities.
iii. Determine interference float for all activities.

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33. The following table gives the activities in a construction project and other relevant
information.
Activity Time in days Cost in Rs.
Normal Cras Normal Crash
h
1-2 8 6 100 200
1-3 4 2 150 350
2-4 2 1 50 90
2-5 10 5 100 400
3-4 5 1 100 200
4-5 3 1 80 100
i. Draw a network diagram of the project
ii. Determine the project duration which will result in minimum total direct cost.
 iii. If the indirect cost is Rs.70/- per day, determine the optimum duration of the project.
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34. Following table shows the actual demand of refrigerators of over a period of past 7 weeks:

Week 1 2 3 4 5 6 7
3
Demand 44 40 45 38 43 39
9
Using Exponential Smoothing Method (α=0.2), determine forecasted demand for 8 th week.
Also find MAD, MSE & MAPE. Assume Ft = At for first week.

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35. Following table shows the actual demand of Television Sets over a period of past 8 weeks:

Week 1 2 3 4 5 6 7 8
3 2
Demand 30 23 28 25 24 25
0 9

Using Exponential Smoothing Method (α=0.2), determine forecasted demand for 9 th week. Also
find MAD, MSE & MAPE. Assume Ft = At for first week.

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36. The sales of a certain product during a ten -year period have been as follows:

Period 1 2 3 4 5 6 7 8 9 10
Sales 200 220 210 230 250 320 360 400 390 400
Fit a straight-line trend using the method of least squares and estimate the sales for the period 11.
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37. Following data is available about the actual sales quantities for the past 12 years.
Year: 1 2 3 4 5 6 7 8 9 10 11 12
7 13 10
Sales: 80 98 128 119 102 104 102 82 73
5 7 0
Find the forecast for the year 13 by fitting a straight-line trend using the method of least squares.
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38. The demand of a product for past 12 months was observed as follows.

Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand 280 288 266 295 302 310 303 328 309 315 320 332

Using 3 years moving average method, find out forecasted demand for 13 th month. Also find MAD,
MSE & MAPE.
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39. The demand of a product for past 12 months was observed as follows.

Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand 140 144 133 148 151 155 152 167 154 158 160 161
Using 3 years moving average method, find out forecasted demand for 13 th month. Also find
MAD, MSE & MAPE.

40. The monthly demand for units manufactured by the company has been as follows –

Month May June July August September October November December

Units 100 80 110 115 105 110 125 120

Use the exponential smoothing method to forecast the number of units from June to January. The
initial forecast for May was 105 units and α = 0.2 Also calculate the absolute percentage error for
each month from June through December and the MAD and MAPE of forecast error as of the end
of December.

41. A small restaurant catering to patrons with a taste for pizza which is its specialties. The
Manager must forecast weekly demand for these special pizzas so that he can order pizza
shells weekly. Recent demand as follows –

Week 1 2 3 4 5 6
Demand 50 65 52 56 55 60

Forecast the demand for pizza from 4th week to 7th week by using simple moving average
method with n=3. Then repeat the forecast by using the weighted moving average method
with n=3 and weights of 0.50, 0.30 and 0.20 with 0.50 applying to the most recent demand.
Also calculate the MAD for each method.
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42. Following are the sales figures of Laptops of a company for 12 weeks.
Week 1 2 3 4 5 6 7 8 9 10
Actual Value 145 158 146 150 158 146 165 173 151 171
Illustrate the method by deriving the forecasts, using exponential smoothing method, for
and assuming forecast for the first week to be 140, and calculating MSE for
each value of , and finally deciding optimum value of that minimizes MSE.
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43. The sales of a certain product during a ten -year period have been as follows:

Period 1 2 3 4 5 6 7 8 9 10
Sales 200 220 210 230 250 320 360 400 390 400
Using exponential smoothing method find the forecast values of sales for all the years
assuming the forecasted value for the first year as 200 and
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44. Following data is available about the actual sales quantities for the past 12 years.
Year 1 2 3 4 5 6 7 8 9 10 11 12
Sales 75 80 98 128 137 119 102 104 100 102 82 73
Calculate the forecast for the 13th year by using weighted moving average method for n=3
years. Also calculate MSE, MAD and MAPE.
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45. Write short note on the followings –
a. S – Curve in the Project Management
b. Debt Service Coverage Ratio (DSCR)
c. What is work schedule? What purpose does it serve?
d. With reference to exponential smoothing method of forecasting discuss
“Smoothing Constant" and its significance in detail.
e. Explain in detail the significant difference between moving average method and
weighted average method
f. Gantt Chart
g. Project Life Cycle
h. Detailed Project Report
i. Role and Responsibilities of Project Manager
j. Work Breakdown Structure (WBS)
k. Schedule Performance Index
l. ‘Team Building’ in Project Management.
m. Exponential Smoothing Method
n. Explain how uncertainties are handled in PERT approach to project planning.
o. Essential requirements of Project Management software
p. Project Crashing
q. What are the contents of the Project Report?
r. Techno-Economic Feasibility of a project
s. Floats and Slacks