VCE Summer Internship Program 2020

Smart Task Submission Format

Intern’s Details
Name Ruchit Gupta

Email-ID gruchit270298@gmail.com

Smart Task No. 3

Project Topic Project Finance - Modeling and Analysis

Smart Task (Solution)

Task Q1:
How a new venture is assessed to qualify as project finance. What are the factors that needed to be
considered?

Task Q1 Solution:

1. Calibre of the business principals

Principals are the primary source of fuel for business projects. Their vision, energy and the effort they
are willing to make are the factors that make or break a project.

2. Business environment risks

Lenders make sure that your industry is not perceived to be subject to inordinate risk. The upcoming
lifting of a tariff barrier, a procedure that creates pollution or the fact that your business is situated
within a fragile sector of the economy may cause a lender to be overly cautious. The company should
also be adequately covered by insurance that is tailored to the nature of its activities.

3. Project credibility

If lenders or investors decide to put money in your project, it's because they hope the investment will
pay off. They'll make sure your previsions are based on verifiable facts and are realistic.

4. Company's ability to pay and financial structure

You'll have to prove to lenders that the company is able to meet all of its financial obligations. The

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company's financial structure should therefore show a healthy balance between loans and assets.

5. Principals' financial history

In lenders' eyes, the future can largely be predicted by the past. It is more than likely that they will run
a credit check on the business principals to see if principals effectively met past financial obligations. A
bankruptcy or unpaid debt may negatively impact a principal's credibility.

6. Security

Debt financing is usually secured against company assets, which should be sufficient to allow lenders to
cover their risk.

500 Words (Max.)

Task Q2: Explain in detail the revenue model for Solar PV Project, Residential Building,
Manufacturing Unit and other PPP projects.

Task Q2 Solution:

The most significant revenue stream comes from selling electricity to the grid, either at a fixed price
(guaranteed feed-in tariff) or a market price. If the installation is not grid-connected, the savings from
not having to purchase electricity from other sources improve net income in the same way. The project
may also be able to generate and sell renewable energy certificates or carbon emission reduction
certificates, depending on the country. A second income stream comes from tax benefits. They can take
the form of:

Production Tax Credits: An amount for every kWh produced over a fixed time period.

Investment Tax Credits: The opportunity to offset some or all of the initial investment over a certain
number of years against pre-tax profits.

The value of the tax credits depends on the tax capacity of the investor. In general, homeowners will

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not be able to benefit from that stream. As a result, the revenue stream is not constant over the years,
especially if early years see high interest payments.

Revenue model for residential building.

Business model also covers ways of adding value for customers and ways of managing expenses. A
revenue model is important for the company s long term business projections as it gives an overview of
the company s current and future potential to earn profits. A revenue model includes every aspect of
the revenue generation strategy of the business.

The affiliate revenue model is increasingly popular owing to the way it dovetails effectively with other
revenue models particularly ad based models. They are the torch bearers of the group of startups who
hide their inability to make money with the clichéd line we are focused on growth right now revenues
will come later they have shut down rental listings and are now only o. The first step in building a real
estate development model is to fill in the assumptions for schedule and property stats. We created an
income statement assumption schedules crag that will help us in building the revenue model in excel.
Projecting your numbers from the top down or building your projections from the bottom up.
Applicable mainly to sellers or marketplace oriented companies the arbitrage revenue model uses the
price difference in two different markets of the same good service to make a profit.

At the core of a great business model is the ability to generate superior profits. A company s revenue
structure is the way it earns and receives money. A revenue model is how a business makes money.
Financial forecasting can be done in one of two ways. Here is a list of items that should be included. In
order to generate the superior profits you need to create a profitable revenue model. Revenue model is
not the same as business model although the two ideas are interrelated and the terms are often used
interchangeably. The total gross margin generated needs to exceed your operational. Your revenue
model should generate high gross margins. Schedule and property stats. Even if you’re still at the pre
revenue stage you should build a financial model that includes your revenue estimates.

Manufacturing is the production of merchandise using labor, materials, and equipment, resulting in
finished goods. Revenue is generated by selling the finished goods. They may be sold to other
manufacturers for the production of more complex products (such as aircraft, household appliances or

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automobiles), or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users
and consumers. Manufacturers may market directly to consumers, but generally do not, for the
benefits of specialization.

The model PPP model since it tries to divide the risk and return between the PPP partners equally.
Both partners invest capital in to the project. Returns are shared as per the original capital investment
ratio as well as the risk perception of the partners. It is advisable for the project to be run by the
private enterprise to draw upon its efficiency and past experience of running similar business. Projects
requiring large capital like oil refining etc. may fall under this category of PPP revenue models. Risk
Perception: This model tries to equally distribute the risk and return amongst the PPP partners.
Invariably the vendor will also have a large stake in the success of the project. Thus the model is likely
to work with fair degree of autonomy to the vendor. Government may make initial investments and
then accrue annual revenue for their investments
Only a fixed pay off or only a variable payoff creates two separate alternatives of this model.
500 Words (Max.)

Task Q3: What should be the additional points that needed to be included in a financial model, if the
financing bank is from abroad and the debt is in US$ but revenue is in INR.

Task Q3 Solution:
`The additional point which is to be included in a financial model if the financing bank is from abroad
and the dent is in US$ but revenue is in INR is that the project must hedge the currency risk.
Currency risk is, to a large extent, a part of the construction and operating risk of the project. This will
automatically shift the risk from the project to the supplier of the product or service. Currency risk
occurs when the revenue or turnover and the expenses (operating or interest) of a project are in
different denominations. Foreign investors will generally use their primary operating currency in
determining the projected IRR or NPV of a project.
Although the existing PPP laws and guidelines mitigate currency risk, the most common method for
managing this risk is to enter into a hedge agreement with the supplier and/or a third party financial
institution, in which the project is assured a certain exchange rate. Before such an agreement is
concluded, the counterparty’s credit rating must be examined to reassure the project of the party’s
ability to meet its obligations. Other methods of mitigating this risk include arranging for a portion of

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the project’s revenues or turnover to be paid in the relevant foreign currency.

500 Words (Max.)

Please add /delete blocks for if needed.

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