Intern’s Details

Name Ronak Jain

Smart Task No. 2

Project Topic Project Finance

Smart Task (Solution)

Task Q1 : While preparing a financial model what are the assumptions we need to
take. Please list down the
list of assumptions with the values, assuming the project will be set up in India.

Task Q1 Solution :

Basically, project finance models start with some assumption- how much you estimate
to spend constructing
the project, what percentage of financing will come from equity financing versus
debt, and also cost of
different debt items. Usually, the assumptions are split into two- financing and
operating assumptions. The
assumptions are classified as

1. Project assumptions-
A. Completion time- 25 years
B. Land size in Sq. ft.- 3000
C. Deposit- 25% of annual rent
D. Debt repayment- 10 years
E. Monthly Rent- 250,000

2. Financing assumption-
A. Debt - 70%
B. Equity - 30%
C. Debt service reserve- 0.25 years
D. Payment periods- 40 (Quarters)
E. Repayment periods- 10 years
F. Debt rate-10%

3. Cost assumptions-
These can be further classified as-
A. CAPEX or project cost related assumptions- 10,170,000
B. OPEX or operating cost related assumptions. 966,000

4. Economic assumption-
A. Inflation- 4%
B. Exchange rate (USD/INR)- 70

5. Tax assumptions-
A. Tax rate- 25%
B. Corporate tax- 25%
C. Tax holiday- 0 years
D. Minimum alternate tax - 18%
E. Dividend distribution tax- 0%
500 Words (Max.)
Task Q2 :Explain the function of revenue, cost and debt sheet of the financial
model.

Task Q2 Solution :

Financial Modeling is a tool that can be used to forecast a picture of a security

or a financial instrument or a
company’s future financial performance based on the historical performance of the
entity. The purpose of
Financial Modeling is to build a Financial Model which can enable a person to take
better financial decision.
The decision could be affected by future cash flow projections, debt structure for
the company, etc. All these
factors may affect the viability of a project or investment in a company.

The function of revenue, cost and debt sheet of the financial model is as follows-

A. FUNCTION OF REVENUE SHEET IN FINANCIAL MODEL-

Revenue sheet functions are as follows-
1. To know the total revenue generated from a project.
2. Projection of all revenue items.
3. To define the different source of revenue or revenue parameters of the
project.
4. To know the interest earned on various investments.
5. To know the revenue growth of project during different periods.

B. FUNCTION OF COST SHEET IN FINANCIAL MODEL-

Cost sheet function are as follows-
1. Estimation of overall cost incurred while completion of project.
2. Estimation of CAPEX or capital expenditure of the project.
3. Estimation of OPEX or operating expense of project.
4. To know the individual cost unit as a percentage to total cost.

C. FUNCTION OF DEBT SHEET-

Debt sheet function are as follows-
1. For projection of interest expense.
2. Calculation of interest payment.
3. Projection of principal amount of debt.

500 Words (Max.)

Task Q3 : Explain in detail the various steps involved (with the importance) in the
fin flows sheet. Why and
what the bank needs to check before financing the project.

Task Q3 Solution-

Steps involved in preparation of fin flow sheet are as follows-

1. Projection of project details-

The first step involved in preparation of fin flow sheet is to project the
all details related to project in
fin flow sheet. This will help to show the percentage of debt and equity used
to finance the project and
 the debt service coverage ratio. It will also the area in which project id
been implementing.
 2. Projection of assumptions need to be kept in mind while preparing the
financial model-
There are various assumptions that need to be kept in mind while preparing
the financial model. The
next step is to list these assumption on the finflow sheet. This will help us
in doing various calculation
in coming steps.

3. Estimation of net income for different periods-

Next step is the estimation of net income generated by calculating the total
revenue or expenses
generated during the period and then deducting all the operating or non
operating expense from the
revenue and then tax to find net income.

4. Finding total project cash flow from the project’s equity financing-
Another important step is to find the total cash inflow in the project from
equity financing.

5. Finding DSCR and then final project cash flow-

Next step is to find DSCR i.e debt service coverage ratio and final project
cash by deducting principal
and interest amount from final project cash flow from equity.

6. Finding results-
the last step is to find the result that is been in form of calculation of
IRR (internal rate of return)
from equity financing, DSCR minimum or average (debt service coverage ratio)
and IRR
(internal rate of return) from project.

Bank always tries to understand the abilities of customer and in order know the
capabilities of project
company, the bank check out the whole profile and background of company. Bank needs
to check
following before financing a project-

1. Company and management profile.

2. Last three years audited financial results.
3. Details of collateral security.
4. Projected cash flow for next five years.
5. Bank loan of the company and its repayment structure.
6. All commercial agreements related to project.
7. Memorandum and articles of association of company with certification of
incorporation.
8. Last one year bank statement from all the bankers.
9. Personal guarantee of the directors and their net worth statement.
10. Any other document which banker may feels necessary.

500 Words (Max.)