Attention is also drawn table A2 which discusses the maintenance and replacement provisions. The most usual way of dealing with a project is to assume a life, and allow for maintenance, and for major replacements when they likely to occur, and finally bring in a positive value at the end representing the scrap value of the plant. In this case, however, it was easier to estimate an annual sum which could keep the plant fully competitive for ever. For ever sounds a long time: but in practice it would make virtually no difference if a life of, say, 50 years had been assumed.
Table A3 takes the investment costs of Table A1 and phases them over the two and a half year expected construction period.
Table A4 shows the time profile of the project bringing together investment costs and operating costs and benefits. The first two rows are taken from Table A2 and A3. The third row introduces the shadow wage rate at accounting prices was estimated. Assuming that unskilled labour would consume all its wages, and applying the standard conversion factor, consumption at world prices would be 62 ½ per cent of the actual wage. Thus where w is the actual wage, and c consumption at accounting prices, we have c= 65.5/100 w. From the discussion it appeared that the shadow rate for Pakistan expressed as a percentage of c should be rather high, and so 80 per cent was chosen. The shadow wage is there fore equal to 8c/10, i,c ½ w. The figures of raw (3) of Table A4 are there fore half those of row (1). If anything, 50 per cent may be on the low side, because the standard conversion factor almost certainly underestimates the ratio of world to domestic prices for the typical family budget of an unskilled worker. However, it makes rather little difference to this project what shadow rate is chosen, because labour costs, especially in investment expenditures, are a small proportion of the total.
Row (4) of Table A4 is the array of social profits which must be discounted to find the present social value. Rather arbitrarily an ARI of 10 per cent was chosen in the belief that Pakistan’s investments ought to be yielding at least this much. The upshot is that the social present value is negative, minus Rs.18,063. In arriving at this final value, we discounted Year 1 by nothing, Year 2 by 10/11, Year 3 by (10/11)2, and so on. If expenditures and receipts are evenly spread over the years, this in effect means that we have discounted to a point of time roughly six months ahead. No great distortion is likely to result from this, provided the same procedure is applied to all projects.
Since the present social value was negative at 10 per cent, the social internal rate of return was also calculated. This turned out to be 5.4 per cent. The private rate of return given a 100 per cent tariff, had been estimated to be 12.3 per cent.
Some reasons may wonder that no allowance has been made for external economies. In truth, we could think of no external economies except labour, and perhaps management, training, But, relative to other industrial projects these would probably be less than normal, partly because it is relatively capital-intensive so that the up-grading of unskilled labour is not large compared to the investment expenditure, and partly because the techniques are, simple, specialized, and standardized, so that the practical engineering and administrative experience involved is unlikely to be at all catalytic.
Finally, there is the question of risk – the risk that our estimates are wrong. It is on balance clear that this is rather a low risk project. Since the techniques are long-established, and the consulting firm has vast experience of erecting such plants in many countries, including many developing countries, their predictions can be taken as being as accurate as any such are likely to be. We can only have erred on the side of optimism in accepting their view that the plant could operate continuously at 100 per cent capacity after two and a half years.
It is also clear that the supply and marketing risks are small: the most costly material input is domestically supplied, and the output is for a domestic market which would be assured if the plant were built. There is also rather unlikely to be any fall in the accounting price of the output, since rayon is a long established product with settled techniques and very unlikely to be superseded. The chief risk in our calculations is undoubtedly the price of cotton linters. As we know, the present accounting price assumed cannot have been too high, for if it were any higher the plant could operate on imported wood pulp. On the other hand, it is possible that wood pulp would get more costly over the years, so that the maximum price of cotton linters could rise, and make the assumed accounting price too low. As against this, it may be that now or in the future the alternative use value (for export) for cotton linter is less that $125 per ton. Since the project has negative present value at this price (at a 10 per cent rate of discount) it has to be, to give the project a positive present value at a 10 per cent discount rate. This calculation has been done, and the answer is that the price must be about 39 per cent lower, or about $76 per ton.
There is danger in calculating, as above, the value of an uncertain price which is just low or high enough to make the project viable (or definitely not viable). This is because it may set people arguing that this is the right price. But, bearing this in mind, it is quite a useful thing to do, because sometimes the price that would have to be assumed is plainly absurd.
1.- What do we conclude from this case study, is it acceptable or unacceptable with the information we have? Explain
Table A1. Investment costs
Value as Accounting
Stated in values for goods unskilled
ITEM Project and services labour The rest
Report excluding (actual value) (2)+(3)-(1)
Unskilled labour
1.- Imported equipment 22,000 22,000 ___ ___
2.- Duty on above 4,975 __ ___ 4,975
3.- Locally produced equipment 4,900 4,900 ___ ___
4.- Local labour, works and tools 1,200 120 1,080 ___
5.- Foreign labour during start-up 700 700 ___ ___
6.- Total cost of equipment 33,775 27,720 1,080 4,975
7.- Engineering services 2,400 2,400 ___ ___
8.- Civil engineering and works 11,000 4,400 2,420 4,180
9.- Land 150 94 ___ 56
10.-Lighting and fire equipment 350 350 ___ ___
11.-Contingencies 500 367 37 97
12.-Working capital 4,100 2,378 164 1,558
13.- Management and overheads during start-up 1,500 938 ___ 562
14.-Total investment cost 53,775 38,647 3,701 11,428
Table A2. One Year’s operating costs and receipts at 100 per cents (7,000 tons capacity)
Value as Accounting
Stated is values for goods Unskilled Labour The rest
Project & services (actual value)
Report excluding
Unskilled Labour
1 2 3 4
1.- Cotton linters See 4,998 ___ ___
2.- Chlorine note 48 ___ ___
3.- Sodium bisulphate to 17 ___ ___
4.- Sulphur item 870 ___ ___
5.- Chatcoat 6 92 ___ ___
6.-Total of above 13,019 6,025 ___ 6,994
7.- Caustic soda 4,200 2,939 ___ 1,270
8.- Other materials 630 472 ___ 158
9.- Filter materials 315 197 ___ 118
10.- Packing materials 154 96 ___ 58
11.- Maintenance materials 385 241 144
12.- Electricity 1,803 1,442 433 -72
13.- Steam 1,740 870 ___ 870
14.- Technical and admve staff 445 445 ___ ___
15.- Other labour 570 ___ 570 ___
16.- Overhead expenses 770 480 ___ 290
17.- Total ‘cost of production’ 24,031 13,195 1,003 9,830
18.- Maintenance and replacement of
equipment 3,378 2,772 108 498
19.- Maintenance and replacement of
building 330 132 73 125
20.- Total operating cost 27,739 16,102 1,184 10,453
21.- Total receipts 36,492 18,957 ___ 17,535
22.- Net revenue 8,753 2,855 -1,184 7,082
Table A3. The phasing of investment costs as in Table A1 over the 2 ½ year projected construction period
1ST Year 2nd Year 3rd Year
1 2 3 1 2 3 1 2 3
1.- Imported equipment 7,333 7,333 ___ 14,667 14,667 ___ ___ ___ ___
2.- duty on above 1,800 ___ ___ 3,175 ___ ___ ___ ___ ___
3.- Locally produced equipment 1,633 1,633 ___ 3,267 3,267 ___ ___ ___ ___
4.- Local labour, works & tools 120 120 ___ 1,080 ___ 1,080 ___ ___ ___
5.- Foreign labour during start-up ___ ___ ___ ___ ___ ___ 700 700 ___
6.- Total cost of equipment 10,886 9,086 ___ 22,189 17,934 1,080 700 700 ___
7.- Engineering services 200 200 ___ 1,100 1,100 ___ 1,000 1,100 ___
8.- Civil engineering & works 7,000 2,800 1,540 4,000 1,600 880 ___ ___ ___
9.- Land 150 94 ___ ___ ___ ___ ___ ___ ___
10.- Lighting & fire equipment ___ ___ ___ 250 250 ___ 100 100 ___
11.- Contingencies ___ ___ ___ 250 183 250 183 ___
12.- Working capital ___ ___ ___ 2,000 1,160 80 2,100 1,218 18
13.- Management and 84
overheads during start-up 200 125 ___ 800 500 __ 500 313 ___
14.- total investment cost 18,436 12,305 1,540 30,589 22,727 2,058 4,750 3,614 102
Table A4. Time profile of the project
Year 1 Year 3 Year 3 Year 4 and all
Subsequent years
1.- Labour – actual value (sum of cols. 3
of Table A2 and A3) -1,540 -2,058 -694 -1,184
2.- Accounting values (sum of cols. 2 of
Tables A2 and A3) -12,305 -22,727 -2,187 +2,855
3.- Labour at shadow wage equal to 50
per cent of actual wage (see text) -770 -1,029 -347 -592
4.- Total of rows (2) and (3) -13,075 -23,756 -2,534 +2,263
Present value of row (4) at 10 per cent
discount 18,086
CASE 4.- Translate the following paper and answer the questions below.
Visual Basic
This is a brief introduction of what VB is, what it has been and an overview of its capabilities. Assuming you have a basic knowledge of Windows 95/98.
What is Visual Basic?
Visual Basic is one of the most powerful developing tools for Windows available today. Originally Visual Basic was called BASIC. Language designers in the 50's developed the BASIC language for beginning programmers. At the time, BASIC was easier to learn than other languages such as FORTRAN or COBOL. True to the originial, Visual Basic does not stray from its roots; new ones learning programming can still create simple Windows programs in a short while, with minimal knowledge. It is to be noted that Visual Basic's simplicity should not be translated as inability. Advanced applications can be made with Visual Basic and it supports various advanced programming techniques, with the exception of true multiple inheritance.
Why has BASIC gone Visual? The role of programming has changed over the decades along with the progress of hardware design. Languages today stray greatly from the languages of a few years ago. Before the advent of GUIs(Graphical User Interfaces), a programming language was just a simple text-based tool to construct programs. Presently you need much more than just a language that spits out text. You need a development tool that can take advantage of Window's emerging features, such as graphics, multimedia, online and multiprocessd activities. Visual Basic is more than a language in that it lets you interact with these aspects of the Windows environment and create GUIs easily.
The transition from BASIC to Visual Basic is noticable. There are many new features. VB has a compiler that creates standalone runtime .EXE files that execute more quickly than previous versions of VB. A compiler is an application that converts the instructions you write, into a language that the computer understands, so that you and others can use the application. This compiler is called Developer Studio and is also used with lower level languages such as Visual C++ and Visual J++. So, in taking this tutorial you not only learn the IDE(Integrated Development Environment) for VB, but also for other languages. Additionally, wizards have been added to the IDE to speed up the development of programs. Wizards are question and answer boxes that help you step-by-step in creating a custom application.