VCE Summer Internship Program 2020

Smart Task Submission Format

[ Download This Format in .DOCX format and then Edit it and SUBMIT ]
Intern’s Details
Name Meet Agrawal

Email-ID Meetagrawal39@gmail.com

Smart Task No. 1

Project Topic Project Finance – Modelling and Analysis

Smart Task (Solution)

Task Q1: What is Finance? How Finance is different from accounting? What are important
basic points that should be learned to pursue a career in finance?

Task Q1 Solution: Basically, Finance is managing of funds/money and assets. The main
difference is that in finance the money is being earned and invested into different things and
recording and analysis of this funds and then reporting of the same for better understanding of the
flow of money is accounting. The important points that should be learned to pursue a career in
finance can be as follows:

 Analytics
 Problem Solving
 Techno Savvy
 Innovative

500 Words (Max.)

Task Q2: What is project finance? How is project finance different from corporate finance?
Why can’t we put project finance under corporate finance?

Task Q2 Solution: In Project Finance the finance is being procured from banks or financial

ST Solution Page 1 https://techvardhan.com

 VCE Summer Internship Program 2020
Smart Task Submission Format

institutions and mostly these funds are raised by large industries. Here the fund collecting company
has to forecast the future cashflows of the project because on this only they will be provided finance
by the bank or financial institutions, if they find this project feasible then and then only, they will
sanction the finance for the project. And here the whole amount is not given at the same time rather
it is given according to the completion of the project.

In corporate finance the finance is being acquired either in the initial stage of the company or at the
time of any expansion in the company. And in project finance the finance is being acquired when
new project has to be started. In corporate finance the risk of investors is high as compared to risk
in project finance. In corporate finance usually the loan is given on the assets of the company, and
in project finance the financer looks at the project assets as collateral.

From the above paragraph we can conclude that corporate finance and project finance are very
different from each other. The capital acquisition is different in both and realisation of the same is
also different because of which we cannot put project finance under corporate finance.

500 Words (Max.)

Task Q3: Define 20 terminologies related to project finance.

Task Q3 Solution: The 20 terminologies related to project finance are as under:

1. All-in cost
2. Amortization
3. Prime rate
4. Net present value (NPV)
5. Internal Rate of Return (IRR)
6. Non-recourse
7. Operating risk
8. Sovereign risk
9. Spot Market
10. Sunk costs
11. Venture Capital
12. Weighted Average Cost of Capital (WACC)
13. Trade finance
14. Debt-Service Coverage Ratio (DSCR)
15. Independent Power Producer (IPP)
16. Hedge
17. Cash sweep
18. Debt sculpting
19. Loan Life Cover Ratio
20. Reserve Accounts

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 VCE Summer Internship Program 2020
Smart Task Submission Format

500 Words (Max.)

Task Q4: What is non-recourse debt / loan? What is mezzanine finance explained with an
example?

Task Q4 Solution: Non-recourse debt / loan is a loan that are secured by a given collateral. Mostly
this collateral is property (real estate).

As the risk of lender is higher, he charges higher interest rates on non-recourse debt/loan. If the
receiver of the loan fails to repay the loan amount than the lender will sell the collateral which was
kept by the receiver of loan. The receiver of the loan is not liable to pay the balancing figure to the
lender i.e., if the amount of collateral is less at the time of default than the lender can not demand
the difference from the receiver of the loan. And this is a long period loan.

Mezzanine finance is a finance that contains both the features of debt and equity financing that
gives the lender the right to convert its loan into equity in case of a default.

Example: Let’s assume the buyer is acquiring a small business for a reasonable multiple at $2
million. The business earns an annual operating income of $400,000. A senior lender will give you
60% ($1,200,000) at an annual rate of 7% ($84,000 interest-only) a year.  

Without mezzanine financing, you would need to come up with the remaining $800,000. 

From the $400,000 annual operating income, subtract the senior debt service of $84,000.
Assuming a corporate tax rate of 21%, this leaves an after-tax profit of $249,640 

All things being constant, your annual return on investment (ROI) for your $800,000 investment
would be about 31% ($249,640 in after-tax profit ÷ $800,000 in total investment).

500 Words (Max.)

Task Q5: Explain in detail with reasons of what the sectors are or which type of projects are
suitable for project finance?

Task Q5 Solution: Project Finance is long-term financing for capital-intensive industries. The
sectors suitable for project finance are as under:
 Water
 Transportation
 Power & Energy
 Housing
 Healthcare
 Education

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 VCE Summer Internship Program 2020
Smart Task Submission Format

 Prison
 Other sectors like:
 Sports Infrastructure
 Properties and Real Estate

Explanation: Generally, Project Finance is used in the above-mentioned sectors. In which sectors
like oil extraction, power generation and infrastructure sectors are most appropriate sector for
developing this structured financing technique, as they posses very low technological risk. You can
also predict the market to an extent. Project finance plays link for the demand and supply market.
The brands go for project finance, who can provide the funds on the spot or as quick as possible for
commencement of the project. And also provides 60 days of credit period in case of a trader.
500 Words (Max.)

Please add /delete blocks for if needed.

ST Solution Page 4 https://techvardhan.com