exchange rate 3

Question 1

the opportunity cost of the historical investments or all existing assets for

Answer 1

the “without” and “with” the project case.

Question 2

further adjustments to account for the opportunity cost of

Answer 2

land, inventory, and the excess of accounts receivable over accounts payable in year t in order to derive the total amount of the net replacement value.

Question 3

Land has an X like every other asset when it is used by a project. Even if the land is donated to the project by the government, it should be included as part of the
Y at a value that reflects the market value of land in the project area.

Answer 3

opportunity cost, investment cost

Question 4

In most cases, the increase in the liquidation value of land (particularly in urban areas) has

Answer 4

nothing to do with the project under evaluation.

Question 5

Real increases in land value usually come about because of

Answer 5

the investment being made in public sector infrastructure. It is important not to attribute the increase in the real value of land to any particular project to avoid introducing a bias toward land-intensive projects.

Question 6

when the project either improves or causes damage to the land. In such cases the amount of the land improvement or deterioration should be added to or subtracted from the real value of the land

Answer 6

measured at the beginning of the project to determine the liquidation value of the land at the end of the project.

Question 7

Alternatively, the opportunity cost of land can be reflected in the cash flow profile of the project by an

Answer 7

annual rental charge

Question 8

the loan disbursement is X and the repayment of loan and interest payment are Y as the owner is looking to the Z after paying all debts and obligations.

Answer 8

cash inflow, cash outflow, net receipts

Question 9

he analysis from a banker’s point of view, however, is not concerned with the financing but is looking to
determine the X of the project to all investors irrespective of debtors or shareholders

Answer 9

financial viability

Question 10

Often both debt and equity financing come from the same source and the loans have been either explicitly or implicitly guaranteed by the X. We will therefore begin our development of the financial cash flows of this project by making Y between the return received by the lenders of debt and that received by the equity holders.

Answer 10

government, no distinction

Question 11

Interest during construction

Answer 11

accounting device to measure the opportunity cost of the funds employed in the project.

Question 12

If no interest has been paid by the project, then interest during construction is

Answer 12

not cash expenditure and should not be included as expenditure in the cash flow statement of the project

Question 13

if interest payments have been made during

the period of construction, then t

Answer 13

here is a cash outflow when the project is being examined from the viewpoint of the owner

Question 14

Like investment expenditures,

operating expenditures should be broken down into

Answer 14

internationally traded and non-traded items;

Question 15

These breakdowns are necessary for the

Answer 15

economic analysis of the project and for providing

a better understanding of the cost structure of the operating expenditures.

Question 16

each expenditure item should be broken down into its components, X. For example, maintenance expenditures should be broken down into Y and Z.

Answer 16

whenever possible
materials
labor

Question 17

Typically projects forecast their sales as a single

line item which

Answer 17

comprises both credit and cash transactions

Question 18

A distinction must be made between X and Y. When a project makes a sale, the good or service may be delivered to the customer but no money transferred from the customer to the project.

Answer 18

sales

cash receipts

Question 19

Until the buyer has paid for what he has received, the
transaction will have no impact on the cash flow statement. When the buyer pays for the items that he previously bought from the project, the project’s accountants will record a decrease in X by the amount that the buyer has paid and an increase in cash
receipts.

Answer 19

accounts receivable

Question 20

The cash receipts for any period can be calculated as follows:

Answer 20

Cash receipts for period (inflow) = Sales for period + Accounts receivable at beginning of period - (Accounts receivable at end of period + bad debs during the period).

Question 21

Accounts receivable are typically measured as X. It is important to ensure that the accounts receivable selected for the project are consistent with the current
performance of Y. Also important is to assess the likelihood for Z and to make allowances for them.

Answer 21

percentage of sales
industry standards
bad debts

Question 22

Bad debts occur when

Answer 22

a project’s customers default on their payments. They simultaneously reduce the amount of cash inflows to the project and reduce the amount of accounts receivable at the end of the period

Question 23

Similar to the distinction between sales and receipts, a distinction is necessary between the X made by the project and its Y. The value of the transaction will
be recorded in the cash flow statement only when and to the degree that cash is paid.

Answer 23

purchases

cash expenditures

Question 24

Cash expenditures for period (outflow)

Answer 24

Cash expenditures for period (outflow) = Purchases for period + Accounts Payable at beginning of period - Accounts Payable at end of period

Question 25

if the required stock of cash balances to be held to carry out transactions increases in a period, this increase is recorded cash X. On the other hand, if cash balances decrease, this decrease is a cash Y

Answer 25

outflow

inflow

Question 26

a decrease in cash held for transaction purposes is a source of cash for other uses by the project and thus is a
cash

Answer 26

inflow

Question 27

At the end of the project, any cash set aside will ultimately be X to the project as a cash inflow.

Answer 27

released back

Question 28

The amount of cash to be held for facilitating the transactions of the business is typically a:

Answer 28

percentage of the project’s expenditures, sales, or its pattern of debt service obligations.

Question 29

working capital

Answer 29

In order to carry out an economic activity, a certain amount of investment has to be made in
items that facilitate the conduct of transactions. These items are working capital

Question 30

working capital including

Answer 30

cash, accounts receivable, accounts payable, prepaid expenses, and inventories.

Question 31

A decrease in final good inventories implies an X in cash receipts or accounts receivable.

Answer 31

increase

A decrease in final good inventories implies that a sale has occurred

Question 32

Changes in inventories are not recorded separately in the cash flow statement. When a project purchases a certain amount of raw materials, inventories of raw materials will increase. These inventories are financed either through a cash outflow and/or an

Answer 32

increase in accounts payable

Question 33

comparing the amount of working capital estimated as a proportion of

Answer 33

total assets of the project to the industry average or with similar businesses that are operating successfully.

Question 34

The payment made to the government, if the firm is taxable, is the difference between the

Answer 34

value-added taxes collected on the sales and the value-added taxes paid on the purchase of inputs.

Question 35

In this case, there will not be an additional line item reporting the VAT payment to the government.

Answer 35

When a project produces an output that is exempt from VAT it will not be charging VAT when it sells its output. On the other hand, in most circumstances, it will continue to pay VAT on its purchases of inputs

Question 36

negative tax payment or a refund of taxes paid. That should be reported as a negative cost or a cash inflow to the project.

Answer 36

The third possible situation occurs when the output of the project is expected with a rate of zero imposed on the export sales. In this case, no tax is included in the sales revenues or cash inflows. The VAT will be levied and included in the inputs purchased by the project.

Question 37

the span of the analysis will not extend as far in the future as the project may be expected to operate

Answer 37

railway projects

Question 38

Then the residual value of the asset should be included in the cash flow statement as an inflow in the year following the

Answer 38

cessation of operations.

Question 39

The in-use value of the plant is the value of the plant under the assumption that it will

Answer 39

continue to operate as an on-going concern

Question 40

The liquidation value is the value of the assets if

Answer 40

all components of the project are sold separately and perhaps even the plant is taken apart and sold.

Question 41

While dealing with the in-use and liquidation in the future, general guidelines are to use the

Answer 41

cumulative economic depreciation over years

Question 42

Thus, the residual value of land should be generally the same as its real price

Answer 42

at the start of the project

Question 43

Real prices are determined by X while inflation is usually determined by the Y.

Answer 43

changes in the market demand and/or supply for the specific items.

growth of the country’s money supply relative to its production of goods and services.