BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
and suggested answers Year 1999/2000
by Nigel R Hartland
Assignment 1
Newcompany Ltd have been making widgets for many years. A new machine
has become available that will make widgets in a shorter space of time, using
less raw materials.
1. Assuming the cost of the machine is £50,000 and the machine will produce the
following savings every year, calculate the Net Present Value and the Internal
Rate of Return of this investment.
Ignore inflation. Use a discount rate of 5%.
Use 2 decimal places for the IRR calculation
Year
Net Savings £
1
15,000
2
12,000
3
11,000
4
9,000
5
6,000
6
5,000
7
2,000
2. If the companies IRR is 6% is the investment worth the risk ?
3. Comment on the usefulness of these methods for appraising projects.
4. What other factors could come in to project appraisal as well as the financial
benefits to be considered ?
Saved: July 29, 2017
Page 1
BIT
Past Assignments
(20% course mark weighting)
Suggested answer- (other answers may be suitable)
1. Using the given values:
Year
Discount
Factor
Net Savings
£
Projected
Savings £
0
1
-50,000
-50000
1
0.952
15000
14280
2
0.907
12000
10884
3
0.864
11000
9504
4
0.823
9000
7407
5
0.784
6000
4704
6
0.746
5000
3730
7
0.711
2000
1422
4 marks
NPV £1,931.00 2 marks
IRR 6.39% 2 marks
2. As the calculated IRR of 6.39% is greater than the companies IRR of 6% you
would invest, as the company will get better returns than investing the capital
elsewhere.
2 marks
3. Very useful for what if analysis- you can play with the figures without spending
any money, try out different scenarios etc.
4 marks
4. Who decides the IRR or the discount rate?
Saved: July 29, 2017
Page 2
BIT
Past Assignments
Company culture - are they innovative or not? Innovative companies may be
prone to risk taking and accept delays in getting good returns. The type of
technology used can have a bearing as well, IT projects tend to have short time
spans as technology is soon outdated. These therefore may have shorter
payback periods.
5 marks
1 mark for presentation
Saved: July 29, 2017
Page 3
BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
and suggested answers Year 1999/2000
by Nigel R Hartland
Assignment 2
1. The following project has been given to you. Draw (freehand) a network
(arrow) diagram showing the various stages of the project. Determine the critical
path and determine how many days it takes to complete the project.
Activity
Duration Days
Preceding activity
A
2
-
B
3
-
C
2
A,B
D
3
C
E
2
C
F
2
E
G
4
D
H
2
F
I
2
G
J
6
H,I
Consider the following questions:
2. If each day of the project costs £250 what is the overall cost of the project ?
3. What would happen to the projects' duration if the activity D was increased by
two days?
4. Could activity F be increased by two days such that it did not affect the overall
project duration ?
5. What is the maximum amount activity F could be increased by such that it
does not increase the overall project duration ?
Saved: July 29, 2017
Page 4
BIT
Past Assignments
6. Input the data to produce the equivalent diagram (as of part 1) in MS Project
98 and print it out.
(20% course mark weighting)
Suggested answer:
1. Diagram should look similar to the following:
where
are Earliest Event Times and Latest Event Times
1. Path B,C,D,G,I,J 20 DAYS
2. £5000
3. D is on the critical path therefore any increase in its duration increases the
overall duration. Therefore, it will Increase the overall duration by two days,
overall cost raised to £5500.
4. Yes, there is spare capacity on this route to increase the duration of F.
5. 3 days, note the creation of a duplicate critical path B,C,E,F,H,J. Any further
increase on F will increase the overall duration of the project.
6. See next page:
Saved: July 29, 2017
Page 5
BIT
Past Assignments
.
The following diagram shows how the chart will look (note the expected answer
is usually presented in landscape view rather than portrait which is used here for
simplicity):
Saved: July 29, 2017
Page 6
BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
Year 2000/2001
by Nigel R Hartland
Assignment 1
A company has been considering whether to invest in new machinery which will
make their production processes more efficient. You have been asked to answer
the following questions:
1. Assuming the cost of the machine is £30,000 and the machine will produce the
following savings every year, calculate the Net Present Value and the Internal
Rate of Return of this investment.
Ignore inflation.
Use a discount rate of 10% and the discount factor figures from the notes for
these calculations.
For the Projected Savings and NPV calculations use 0 decimal places.
For the IRR calculation use 2 decimal places.
Year
Net Savings £
1
12,000
2
10,000
3
8,000
4
6,000
5
4,000
6
3,000
7
1,500
2. If the companies IRR is 12% is the investment worth the risk?
Saved: July 29, 2017
Page 7
BIT
Past Assignments
3. Describe (briefly) the advantages and disadvantages of project appraisal
methods such as these?
4. What other financial factors should be considered in project appraisals?
(20% course mark weighting)
Suggested answers:
1. Calculations should look like the following:
Year
Discount Factor
Net Savings £
Projected
Savings
£
0
1
-30,000
-30,000
1
0.909
12,000
10908
2
0.826
10,000
8260
3
0.751
8,000
6008
4
0.683
6,000
4098
5
0.621
4,000
2484
6
0.564
3,000
1692
7
0.513
1,500
770
Calculated NPV = £4,220
Calculated IRR = 15.82%
2. As calculated IRR is greater than the companies IRR, you would invest, as you
are getting better returns than investing the capital elsewhere.
3. Advantages: (i) Can try multiple scenarios to see if it is worth investing the
money before actually committing any finance to the project - what if analysis.
(ii) Can extend analysis to include other factors such as a change in Discount
Factor, Inflation etc.
Disadvantages: (i) If inflation is not included figures are unrealistic? (ii)
uncertainty in Net Savings figures, who decides them, who decides the Discount
Factor etc.
Other non financial indicators can often have a bearing on the viability of a
project- availability of manpower, equipment etc.
Saved: July 29, 2017
Page 8
BIT
Past Assignments
4. Inflation, tax incentives (Written Down Allowance is one used against capital
expenditure) payment of Corporation Tax etc.
Saved: July 29, 2017
Page 9
BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
Year 2000/2001
by Nigel R Hartland
Assignment 2
1. The following project has been given to you. Draw (freehand) a network
(arrow) diagram showing the various stages of the project. Determine the critical
path and determine how many days it takes to complete the project.
Activity
Duration (Days)
Preceding activity
A
1
-
B
2
A
C
3
A
D
4
A
E
2
B,C,D
F
3
E
G
4
F
H
2
E
I
3
H
J
5
G,I
K
2
J
Consider the following questions:
2. If each day of the project costs £1000 what is the overall cost of the project ?
3. What would happen to the projects' duration if the activity J was increased by
three days?
4. Could activity F be increased by two days such that it did not affect the overall
project duration ?
5. What is the maximum amount activity H could be increased by such that it
does not increase the overall project duration ?
Saved: July 29, 2017
Page 10
BIT
Past Assignments
6. Input the data to produce the equivalent diagram (as of part 1) in MS Project
98 and print it out. Include the separate page that shows the legend.
(20% course mark weighting)
Suggested answers:
The diagram should look similar to the one below:
where
are Earliest Event Times and Latest Event Times
1. Path A, D, E, F, G, Dummy 3, J, K and 21 days
2. Cost = 21 * £1000 = £21,000
3. J is on the critical path, any increase in its duration will increase the overall
duration of the project, in this case to 24 days.
4. No, again it is on the critical path and any increase in its duration will increase
the overall duration of the project, in this case to 23 days.
5. By 2 days, creating an additional critical path, A,D,E,H,I,J,K. Any further
increase will increase the overall project duration.
Saved: July 29, 2017
Page 11
BIT
Past Assignments
6. The data should look similar to the following, note the diagram is portrait for
simplicity, the expected answer is normally produced in landscape:
Saved: July 29, 2017
Page 12
BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
Year 2001/2002
by Nigel R Hartland
Assignment 1
A company has been considering whether to invest in new machinery which will
make their production processes more efficient. You have been asked to answer
the following questions:
1. Assuming the cost of the machine is £35,000 and the machine will produce the
following savings every year, calculate the Net Present Value and the Internal
Rate of Return of this investment.
Ignore inflation.
Use a discount rate of 15% and the discount factor figures from the notes for
these calculations.
For the Projected Savings and NPV calculations use 0 decimal places.
For the IRR calculation use 2 decimal places.
Year
Net Savings £
1
16,000
2
12,000
3
9,000
4
7,000
5
5,000
6
4,000
7
1,000
2. If the companies IRR is 16% is the investment worth the risk?
3. What is the danger in using such methods of appraisal ?
Saved: July 29, 2017
Page 13
BIT
Past Assignments
4. What affect (positive or negative) would the following have on the viability of
the project?
i. Corporation Tax
ii Inflation
iii A higher initial capital outlay
(20% course mark weighting)
Suggested answers:
1. Calculations should look like the following:
Year
Discount Factor
Net Savings £
Projected
Savings
£
0
1
-35,000
-35,000
1
0.870
16,000
13,920
2
0.756
12,000
9,072
3
0.658
9,000
5,922
4
0.572
7,000
4,004
5
0.497
5,000
2,485
6
0.432
4,000
1,728
7
0.376
1,000
376
Calculated NPV = £2,507
Calculated IRR = 18.35%
2. As calculated IRR is greater than the companies IRR, you would invest, as you
are getting better returns than investing the capital elsewhere.
3. A danger with using such methods is that it doesn't take into account other
factors that can affect a project such as financial ones (including inflation) and
non financial for example, legal, availability of resources such as manpower,
machinery, time etc. Project appraisal methods such as these are only used as a
guide to deciding to pursue a project or not.
Saved: July 29, 2017
Page 14
BIT
Past Assignments
4. Corporation Tax
This would tend to reduce the viability of a project as the tax reduces the savings
of the project and hence the NPV and IRR.
Inflation
This would tend to reduce the viability of a project as the inflation reduces the
savings of the project and hence the NPV and IRR.
Higher initial capital outlay.
This would tend to reduce the viability of a project as the outlay will reduce the
NPV and IRR.
Saved: July 29, 2017
Page 15
BIT
Past Assignments
Northern College Programme
Business Information Technology
Assessment exercises
Year 2001/2002
by Nigel R Hartland
Assignment 2
1. The following project has been given to you. Draw (freehand) a network
(arrow) diagram showing the various stages of the project. Determine the critical
path and determine how many days it takes to complete the project.
Activity
Duration (Days)
Preceding activity
A
2
-
B
2
A
C
3
B
D
1
C
E
2
C
F
3
D,E
G
3
F
H
1
F
I
2
G,H
J
3
I
Consider the following questions:
2. If each day of the project costs £3000 what is the overall cost of the project ?
3. What would happen to the projects' duration if the activity D was increased by
One day?
4. Could activity E be increased by two days such that it did not affect the overall
project duration ?
5. What is the maximum amount activity H could be increased by such that it
does not increase the overall project duration ?
Saved: July 29, 2017
Page 16
BIT
Past Assignments
6. Input the data to produce the equivalent diagram (as of part 1) in MS Project
98 and print it out. Include the separate page that shows the legend.
(20% course mark weighting)
Suggested answers:
The diagram should look similar to the one below:
where
are Earliest Event Times and Latest Event Times
Note in this answer the alternative EET’s and LET’s have not been shown.
1. Path A,B,C,E,F,G,I,J and 20 days (nb dummy often omitted)
2. Cost = 20 * £3000 = £60,000
Saved: July 29, 2017
Page 17
BIT
Past Assignments
3. D is not on the critical path, an increase in its duration of one day will not
increase the overall duration of the project, but create an additional critical path
of A,B,C,D,F,G,I,J. The duration remains 20 days. (nb dummies often omitted)
4. No, it is on the critical path and any increase in its duration will increase the
overall duration of the project, in this case to 22 days.
5. By 2 days, creating an additional critical path, A,B,C,,E,F,H,I,J. Any further
increase will increase the overall project duration.
6. The data should look similar to the following, note the diagram is portrait for
simplicity, the expected answer is normally produced in landscape:
Please note when drawing network diagrams if dummies are found to be part of
the critical path they are often omitted from the answer given (given that they
don’t exist). Students will not be marked down if they include them in their
answers.
It is however, good practice to include the activities table to show which activities
are critical or not, assignments from 2004 have asked for this to be included
where possible.
Saved: July 29, 2017
Page 18