VCE Summer Internship Program 2021

Smart Task Submission Format

Intern’s Details
Name Ruchira Parwanda

Email-ID ruchirap1601@gmail.com

Smart Task No. 2

Project Topic Financial modelling

Smart Task (Solution)

1. 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
 Completion time- 25 years
 Land size in Sq. ft.- 3000
 Deposit- 25% of annual rent
 Debt repayment- 10 years
 Monthly Rent- 250,000

2. Financing assumption
 Debt - 70%
 Equity - 30%
 Debt service reserve- 0.25 years
 Payment periods- 40 (Quarters)
 Repayment periods- 10 years
 Debt rate-10%
3. Cost assumptions: These can be further classified as
 CAPEX or project cost related assumptions- 10,170,000
 OPEX or operating cost related assumptions. 966,000

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 VCE Summer Internship Program 2021
Smart Task Submission Format

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

5. Tax assumptions
 Tax rate- 25%
 Corporate tax- 25%
 Tax holiday- 0 years
 Minimum alternate tax - 18%
 Dividend distribution tax- 0%

500 Words (Max.)

1. 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 follows1. 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

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 VCE Summer Internship Program 2021
Smart Task Submission Format

1. For projection of interest expense.

2. Calculation of interest payment.
3. Projection of principal amount of debt.

500 Words (Max.)

Task Q3 :
1. 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.

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 VCE Summer Internship Program 2021
Smart Task Submission Format

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.

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