QUESTION TWO

1. Consider a four year project whose initial outlay is sh.320, 000. The project is expected to generate the following cash flows.

Year	1	2	3	4
Cash flow sh.000	150	120	90	60

2. If the cost of capital is 12%, calculate the IRR of the project. (6 marks)
3. With regard to project management outline any four Benefits of capital budgeting in the public sector (4 marks)

QUESTION ONE

1. A project involving the construction of a storage facility has eight activities. The project manager

has determined the normal and crash times together with their respective normal and crash costs as follows:

	Time( weeks)	Time (weeks)	Cost (Kshs)	Cost (Kshs)
Activity	Normal	Crash	Normal	Crash
1 2	4	2	180,000	340,000
1 - 3	6	4	400,000	800,000
2 3	3	2	100,000	200,000
3 4	6	4	360,000	480,000
3 6	10	5	1,600,000	1,960,000
4 5	5	4	300,000	370,000
5 6	4	2	600,000	780,000
6 7	4	3	200,000	400,000

Required:

a) Draw a project network diagram for this project. (5 Marks)

b) Identify the critical path, the normal completion time and the normal project cost. (3 Marks)

c) (i) The shortest time the project can be completed if it is crashed. (4 Marks)

(ii) The additional cost incurred if the project is crashed. (8 Marks)