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QUESTION ONE (Compulsory) 30 MARKS a) A private investor has been allowed by the government to invest in part of Galana Irrigation project for 5
QUESTION ONE (Compulsory) 30 MARKS a) A private investor has been allowed by the government to invest in part of Galana Irrigation project for 5 years, with an incentive of reduced tax on income. He has been allocated 5,000 acres. The investor intends to plant maize and sunflower. There will be two seasons per year. In first season maize will be grown on 3,000 acres, while rest acreage will go to sunflower. In second season only maize will be planted in the 5,000 acres. All crops will be grown under irrigation. Maize will yield 30 bag /acre while sunflower will yield 20 bags /acre. Annual depreciation is estimated at 10% of initial investment cost. While salvage value will be 30% of initial investment cost. Tax on net income is 10%. The following extra infarmation hac haan catharad an tha investment. One bag of maize sells for Kshs 3,000, while sunflower sells at Kshs 2,000/bag. Assume no other costs or benefits. Sales price and variable cost do not change. Discount rate is 10% i. Develop cash flows for the investment for the 5 years (9Mks) ii. Determine the Net present value and discuss the viability of the project (5Mks) Engineering Study Approach follows the Decision Making Process. Discuss (6Mks) Differentiate between mutually exclusive, independent, complimentary and contingent investments (4Mks) Briefly explain the methods of dealing with uncertainty in engineering economics analysis (6Mks)
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