Sept 2003 Qn 10

[Genesiss]

I do not concur with the solution to this question.In my opinion the Examiners gave the wrong answer –or probably a partial answer!

Whereas the question in part (i) asks for an outline of the procedures the Merchant Bank would adopt in establishing the feasibility of the bid by the city, the solution goes on to talk about how one can achieve an effective identification of the risks facing the project. I think the outline solution should have talked about the whole capital project appraisal process!

There are 2 projects here in my opinion- the short term project (which is successfully applying for the bid ) and the lng term project (which would be the preparation of the olympics in 2016 after sucessfully winnin the bid). The solution in some parts seems to be mixing the two.
Any comments?

 

[Mark Willder]

I agree that the wording of this question is not as precise as it could be. However, for capital project appraisal questions it is worth knowing that the examiners have taken the same approach in many exams.

Typically the paper will only examine a single step from the appraisal process. There are only 8 marks available here, which also suggests that a single step is being examined.

The question is asking for a discussion of the feasibility of the bid rather than a detailed investment submission, which suggests that identifying the risks is required, but not a detailed analysis or mitigation of these risks.

Therefore, the examiners solution works through each part of the bookwork on risk identification (Chapter 12 page 18).

You're right that there are two projects here: the bid for the Olympics, and then the preparation if the bid is successful. However, we must talk about the risks of both. We cannot bid for the Olympics if the risks of the preparation project are too great.

Best wishes

Mark

 

[Genesiss]

Thanks Mark.