Assignment Questions

Section I: True or False

1. Mutually Exclusive means that if one project is taken on, the other must also be
accepted. T/F

2. In case of discounted pay back period the expected cash flows are discounted by
the project’s cost of capital. T/F

3. If a project has a positive NPV, it means it would be generating more cash than is
needed to service the debt. T/F

4. Surplus that remains after paying for the capital accrues to the firm’s stockholders.
T/F

5. No cost is imposed on the current stockholders, if the IRR is less than the cost of
capital. T/F

6. In case of independent projects, NPV & IRR criteria leads to different accept /
reject decisions. T/F

7. MIRR assumes that cash flows from all projects are reinvested at project’s own
IRR
T/ F

8. Branches coming out of a decision point are representation of immediate mutually

exclusive alternate acts. T/F

9. Goal programming technique can be used in case of inventory control. T / F

10. Preemptive goal programming model deals with cases where there is a hierarchy
of priority levels. T/F

11. Integer programming is beneficial where fractional solutions are realistic.

T/F

12. Fraction values of decision variables are not permitted in case of linear
programming model.
T/F

13. The value of the objective function at the succeeding vertex is less than at the
preceding vertex in case f simplex method. T/F

14. Gomory’s constraint is an additional linear constraint which is generated is some

of the basic variables are not integer. T/F

15. Optimization in case of goal programming means “as close as possible to the
indicated goal.” T/F
 Section II: Multiple Choice Questions

1. Effective Capital Budgeting can improve:

a) Timing of assest Acquisition b) Quality of assest Acquisition
c) a & b d) None

2. For a project having cash outflow of $1000 and inflows of $500, $400, $300
and $ 100 respectively,what is the payback period?
a) 2 yrs b) 2.33 yrs c) 2.45 yrs d) 3 yrs

3. The equation for NPV is :

a) Σt CFt / (1 + k) b) Σ CFt ( 1+ k) c) Σ CFt / k d) None

4. NPV profile is the plot of:

a) NPV against cost of capital b) NPV against cost
of debt
c) PV against cost of equity d) PV against cost of
capital

5. A constraint in an LPP is expressed as:

a) an equation with = sign b) inequality with ≥
sign
c) inequality with ≤ sign d) any of the above

6. Which of the following is correct?

a) Variables can be unrestricted in the context of an LPP
b) For an LPP having n decision variables, there must be an equal
number of constraints.
c) Objective function specifies the dependent relationship
between the decision variables and the objective function.
d) Linear programming is probabilistic in nature.

7. Which of the following is not correct?

a) An IPP that has no constraint is known as a Knapsack problem
b) An IPP that has only one constraint is called Knapsack problem
c) Capital Budgeting problem may be handled as a “0-1” type
IPP
d) A traveling salesman problem can be solved using Branch &
Bound Method

8. Identify the wrong statement:

a) Goal programming deals with the linear programming
problems having multiple goals.
b) The goal constraints are flexible.
c) The initial solution of a goal programming problem should
never have a variable in the basis which is an under-
achievement variable.
d) A goal programming problem cannot have multiple optimum
solutions
 9. Deviational variables in goal programming problem must
satisfy following conditions:
a) di+ + di- = 0 b) di+ - di- = 0 c) di+ * di- = 0 d) di+ / di- = 0

10. In a mixed integer programming :

a) all of the decision variables require integer solutions
b) different objective functions are mixed together
c)Only few of the decision variables require integer solution
d) None of the above.

Section III: Short Answer Type Question

1. Describe Gomory’s method of solving an all integer linear programming

problem.

2. “Goal programming appears to be the most appropriate, flexible & powerful

technique for decision problems involving multiple conflicting objectives.”
Discuss.

3. Explain the terms (in context of LPP) a) Non- negativity constraints b)

Feasible solutions c) Objective function d) Extreme point

4. Define the following:

a) NPV profile; crossover rate b)Capital budget, capital
budgeting, strategic business plan.

Section IV: Long Answer Type Question

1. You are a financial analyst for the company. The director of capital budgeting
has asked you to analyze two proposed capital investments, project X & Y.
Each project has a cost of $ 10,000 and the cost of capital for each project is
12%.The projects’ expected cash flow are as follows:

Yr Project X Project Y
0 (10,000) (10,000)
1 6500 3500
2 3000 3500
3 3000 3500
4 1000 3500
a) Calculate each projects’ payback period, NPV, IRR, MIRR
b) Which project or projects should be accepted if they are independent
c) Which project should be accepted if they are mutually exclusive
d) How might a change in the cost of capital produce a conflict between the
NPV & IRR rankings of these two projects? Would this conflict exist if k were
5%
e) Why does the conflict exist?

2. The production manager of a company wants to schedule a week’s production

run for two products A & B, each of which requires the labor and material as
show below:
Product Labor(in hrs) Material M1(in kgs) MaterialM2(in
kgs)
A 2 4 5
B 4 5 4
per week 600 1000 1200

The unit profit for A & B is Rs.20 and Rs.32 respectively.

The manager would like to maximize profit but he is equally concerned with
maintaining workforce of the division at nearly constant level in the interest of
employee morale. The work which consists of people engaged in production,
sales, distribution & other general staff is consisted of 108 persons in all. Also, it
is known that the production of one unit of A would maintain 0.3 persons in the
workforce and one unit of B would maintain 0.75 persons.
Had the production manager been considering only maximizing profit, without
regard to maintaining work force, he would do so by producing 167.67 units of A
& 66.67 units of B. On the basis of the available capacity this would yield a profit
of Rs. 5486.67. However this would maintain 100.3 people in the work The
manager feels that probably he could increase the workforce requirement to the
desired level by accepting somewhat lower profit. Sothe following two goals are
to be achieved :
a) Profit of Rs. 5400 per week and
b) Workforce of 108 persons
Formulate the problem.