Financial Appraisal of Railway Projects
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Questions and Answers

What is the primary responsibility of the Traffic Survey Team regarding traffic data?

  • To create marketing strategies for the project.
  • To make independent assessments of traffic likely to be generated. (correct)
  • To rely completely on the data provided by Project Authorities.
  • To oversee all operations of the Railway Administration.

    • What must the Railway Administration assess to ensure adequate capacity for additional traffic?

  • The line capacity works required and other necessary facilities. (correct)
  • The types of trains that will be running.
  • Only the budget for the new line.
  • The history of past traffic on the line.

    • What should be included in the main project estimate if additional works are necessary?

  • A list of potential traffic scenarios.
  • Customer satisfaction metrics.
  • Only the estimated time for completion.
  • The scope and cost of the additional works. (correct)

    • What is meant by 'Group Justification' in the context of project works?

    <p>Grouping works with a common objective for justification.</p> Signup and view all the answers

    What is the purpose of 'sub-optimization' in selecting project priorities?

    <p>To maximize the benefits by replacing less effective sub-works.</p> Signup and view all the answers

    What should the Railway Administration confirm if adequate line capacity exists?

    <p>That no additional works are required to carry the traffic.</p> Signup and view all the answers

    Why is independent assessment important for the Traffic Survey Team?

    <p>To ensure accurate predictions regarding future traffic.</p> Signup and view all the answers

    What is the average life span of Microwave Equipment?

    <p>12-15 years</p> Signup and view all the answers

    How long do underground cables, such as Quad PIJF and OFC, typically last?

    <p>25 years</p> Signup and view all the answers

    What is the average life span of cell phones?

    <p>3 years</p> Signup and view all the answers

    What is the average life span of a server-based IP exchange?

    <p>12 years</p> Signup and view all the answers

    Which equipment has a lifespan of 6 years?

    <p>Portable VSAT</p> Signup and view all the answers

    What is the lifespan of telephone instruments, both IP and non-IP?

    <p>12-15 years</p> Signup and view all the answers

    What is the lifespan of walkie-talkie batteries for drivers or guards?

    <p>1 year</p> Signup and view all the answers

    What is the lifespan of LED display boards for passenger information systems with RDSO approved specification?

    <p>8 years</p> Signup and view all the answers

    What is the lifespan of data communication equipment including routers and switches?

    <p>8 years</p> Signup and view all the answers

    How long do overhead alignment systems generally last?

    <p>25 years</p> Signup and view all the answers

    What should the financial feasibility of a project be assessed by?

    <p>General Managers of Zonal Railway</p> Signup and view all the answers

    When is the statement regarding the financial results of new lines due to the Railway Board?

    <p>By 31st December following the financial year</p> Signup and view all the answers

    In the covering memorandum submitted to the Railway Board, what should be explained?

    <p>The important variations between actual realization and estimated revenue</p> Signup and view all the answers

    What information about net cash flow is required in the General Manager's note?

    <p>Comparison with what was estimated at the project stage</p> Signup and view all the answers

    What additional information should be included along with the statement of financial results in Form No. 244?

    <p>A note regarding probable traffic prospects in the sixth and eleventh year</p> Signup and view all the answers

    What is the cash flow amount per annum for the project with an investment of Rs.18,000?

    <p>Rs.4,000</p> Signup and view all the answers

    Which minimum acceptable rate of return is suggested in the document?

    <p>10%</p> Signup and view all the answers

    What would be the financial status of the project if the NPV is negative?

    <p>The project is not financially acceptable.</p> Signup and view all the answers

    Under the D.C.F method, how is the project judged for preference?

    <p>By the D.C.F rate of return.</p> Signup and view all the answers

    What is the approximate rate of return for the project with an investment of Rs.4,00,000 and cash flow of Rs.1,00,000 for 10 years?

    <p>21.41%</p> Signup and view all the answers

    At which discount rate does the discount factor for the 10th year equal 4.494?

    <p>18%</p> Signup and view all the answers

    What is the expected NPV for an even cash flow of Rs.1,00,000 per annum at a 20% discount rate?

    <p>Rs.3,57,100</p> Signup and view all the answers

    Which method involves calculating the NPV to assess financial acceptability?

    <p>Discounted Cash Flow method.</p> Signup and view all the answers

    What is the initial cash outlay mentioned for the alternative project?

    <p>Rs.4,00,000</p> Signup and view all the answers

    What does a project with a higher D.C.F rate of return imply when comparing competing projects?

    <p>It is preferred.</p> Signup and view all the answers

    What is the average life in years of high precision and special purpose machines like lathes?

    <p>20</p> Signup and view all the answers

    Which type of mechanical asset has the longest average life?

    <p>EOT Cranes</p> Signup and view all the answers

    What is the average life of construction machinery equipment like tamping and ballast cleaning machines?

    <p>20</p> Signup and view all the answers

    Which of the following equipment has an average life of 12 years?

    <p>Electronic in motion Weigh Bridges</p> Signup and view all the answers

    What is the average life expectancy of light motor vehicles that run on diesel?

    <p>10 years</p> Signup and view all the answers

    Which item has a shorter average life span compared to diesel refrigeration equipment?

    <p>Welding equipment</p> Signup and view all the answers

    How long is the average life of diesel electric/hydraulic locomotives?

    <p>36 years</p> Signup and view all the answers

    What is the average life of heavy motor vehicles as per norms for petrol engines?

    <p>15 years</p> Signup and view all the answers

    Which type of machine has a defined average life of 25 years?

    <p>Material handling machines</p> Signup and view all the answers

    What is the average lifespan of Overhead alignment systems?

    <p>25 years</p> Signup and view all the answers

    Which class of assets has the shortest average lifespan?

    <p>Cell phones</p> Signup and view all the answers

    What is the average lifespan of Telephone instruments IP/Non IP?

    <p>8 years</p> Signup and view all the answers

    In which lifespan category do Quad PIJF and OFC underground cables fall?

    <p>25 years</p> Signup and view all the answers

    What is the average lifespan of Video Phones?

    <p>8 years</p> Signup and view all the answers

    Which of the following has a lifespan of 12-15 years?

    <p>Microwave Equipments</p> Signup and view all the answers

    What is the lifespan of Remote Diagnostics and Predictive maintenance systems?

    <p>8 years</p> Signup and view all the answers

    How long do portable VSAT systems typically last?

    <p>6 years</p> Signup and view all the answers

    For walkie-talkie batteries used by guards, what is the average lifespan?

    <p>1 year</p> Signup and view all the answers

    What aspect is excluded from the working expenses related to traffic data?

    <p>Depreciation</p> Signup and view all the answers

    How is the additional net earnings calculated in relation to expenses?

    <p>Total earnings minus any short circuiting losses</p> Signup and view all the answers

    What is typically considered when assessing the revenues over a 30-year timeline?

    <p>Operational expenses over subsequent years</p> Signup and view all the answers

    What is the primary metric used to evaluate the return on invested cost?

    <p>Total net earnings calculated annually</p> Signup and view all the answers

    What is the basis for calculating additional expenses in the traffic revenue framework?

    <p>Costing and financial data</p> Signup and view all the answers

    What is the appropriate basis for determining the first cost of an asset when calculating its second-hand value?

    <p>The current market price of a similar asset</p> Signup and view all the answers

    How should the second-hand value of an asset that does not depreciate be appraised?

    <p>Equal to its first cost</p> Signup and view all the answers

    Which factor is important to consider when appraising the second-hand value of a depreciating asset?

    <p>The average annual cost of service</p> Signup and view all the answers

    What is a primary focus of a post project appraisal?

    <p>Determining if actual financial returns meet initial projections</p> Signup and view all the answers

    For a meaningful comparison of project performance, what should be aligned with the project estimate stage?

    <p>The computation of actual additional earnings and working expenses</p> Signup and view all the answers

    Why should a mid-term review of projects be conducted?

    <p>To revise estimated costs and evaluate existing projections</p> Signup and view all the answers

    What is one consequence of price escalation during project evaluation?

    <p>It can affect the commercial profitability of the project</p> Signup and view all the answers

    In the context of railway project asset evaluation, what is classified under the user department's responsibility?

    <p>Conducting post project appraisals</p> Signup and view all the answers

    Which evaluation method is typically utilized to determine a project's financial acceptability?

    <p>Rate of return assessments</p> Signup and view all the answers

    What is primarily examined during a productivity test in project appraisal?

    <p>Actual additional earnings compared to estimates</p> Signup and view all the answers

    What is the primary consideration for the choice between ‘incremental costs’ and ‘fully distributed costs’ when analyzing additional traffic?

    <p>Incremental costs are better suited for small, short-run increases.</p> Signup and view all the answers

    In the context of Sinking Fund provisions, what determines the annual payment amount?

    <p>The prescribed interest rates and normal life of the asset.</p> Signup and view all the answers

    Why is it deemed conservative to adopt ‘long term variable costs’ in project financial implications?

    <p>It ensures that projects remain financially viable despite cost variations.</p> Signup and view all the answers

    What is the significance of the intervals provided in Annexure ‘B’ for Sinking Fund payments?

    <p>They show amounts payable at different interest rates across varied periods.</p> Signup and view all the answers

    What could be a potential disadvantage of relying exclusively on fully distributed costs?

    <p>They may underestimate the incremental costs of small traffic increases.</p> Signup and view all the answers

    What does the term 'normal life' of an asset specifically refer to in the given context?

    <p>The average lifespan before replacement is necessary.</p> Signup and view all the answers

    How do semi-variable expenses challenge the application of incremental or marginal costs in the long run?

    <p>They can increase unpredictably, affecting profitability.</p> Signup and view all the answers

    Which statement accurately describes the relationship between TABLE-A and TABLE-B?

    <p>TABLE-B is derived by summing the values from TABLE-A across each year.</p> Signup and view all the answers

    What cash flow components should be included when estimating annual cash flows?

    <p>Only realizable revenue and cash expenditure.</p> Signup and view all the answers

    At a 20% discount rate, what represents the present value of receiving Re. 1 after three years?

    <p>0.579</p> Signup and view all the answers

    Why is it important to ignore depreciation in cash flow calculations?

    <p>Depreciation is a non-cash expense and does not affect cash liquidity.</p> Signup and view all the answers

    In terms of calculating present value, how does TABLE-B make the process easier compared to TABLE-A?

    <p>TABLE-B allows for direct multiplication of a single cash flow by aggregated values.</p> Signup and view all the answers

    What is the present value of receiving Re. 1 annually for four years at a 12% interest rate?

    <p>3.037</p> Signup and view all the answers

    Which element of financial analysis does cash flow estimation directly impact?

    <p>Net Present Value (NPV).</p> Signup and view all the answers

    In TABLE-A, what is the present value of Re. 1 at a 15% discount rate after two years?

    <p>0.756</p> Signup and view all the answers

    What principle underlies the calculations in both TABLE-A and TABLE-B?

    <p>The time value of money must be accounted for.</p> Signup and view all the answers

    Which calculation method utilizes TABLE-A more intricately?

    <p>Discounted cash flow (D.C.F) analysis for net present value.</p> Signup and view all the answers

    Study Notes

    Financial Appraisal of Railway Projects

    • General Principles: Scrutiny by Accounts officer, Test of Remunerativeness, Provisions of Rolling Stock, Scheme for change of traction, Revenue estimate, Assessment of working expenses, Provision for depreciation.

    • Normal Lives of Assets: Normal life of assets is provided in a table.

    • Financial Appraisal Techniques: Accounting rate of return method, Pay back period method, Discounted cash flow (DCF) method, Net present value (NPV), Net Present Worth (NPW), Annual Cash Flows, Rate of return under DCF, Residual Value, Alternative Schemes, Economic Evaluation, Replacements and Renewals, Reconditioning, Scrapping, condemning and abandoning assets, Second-hand value, Post-project appraisal, and Open Line Works.

    Annexures

    • Annexure A: Check list with detailed notes for guidance of zonal Railways.
    • Annexure B: Sinking fund Payment Table.
    • Annexure C: Interest formulas and tables for Discounted Cash flow techniques.
    • Annexure D: Rate of return-using Discounted Cash Flow method, Examples illustrating application of DCF techniques in the financial appraisal of.
    • Annexure E: Examples illustrating application of DCF techniques in the financial appraisal of railway projects.
    • Annexure F: Economic evaluation of Railway investments.
    • Annexure G: Examples illustrating the method of financial justification to be adopted in the replacement, reconditioning or abandonment of existing assets.
    • Annexure H: Examples, illustrating the determination of second hand value of assets.
    • Annexure I: Economic Appraisal Framework for evaluation of railway project.
    • Annexure J: Proforma for submission of Detailed Project Report.

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    Description

    Explore the financial appraisal techniques specific to railway projects in this quiz. Learn about normal asset lives, remuneration tests, and various financial evaluation methods including DCF and NPV. Enhance your understanding of investment analysis in the railway sector.

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