VCE Summer Internship Program 2021

Smart Task Submission Format

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Intern’s Details
Name Shailputri

Email-ID Er.shailputri@gmail.com

Smart Task No. 1

Project Topic FINANCIAL MODELLING

Smart Task (Solution)

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

Task Q1 Solution: Finance is the management and investment of money by various individuals,
corporations, and other institutions. Accounting, on the other hand, is the process of documenting,
maintaining, and reporting a company's financial affairs to display the company's clear financial
situation. The difference is that accounting is concerned with the past, whereas finance is
concerned with the future.
Accounting is accountable for ensuring that all financial transactions are appropriately recorded in
the financial system. Processing accounts payable and receivable, conducting payroll, reconciling
cash accounts, making any necessary expenditure accruals, keeping assets and liabilities on the
balance sheet, and managing banking connections are all part of the job. These chores are
completed throughout the month, and the books are closed once all of the entries for that month
have been completed. To maintain the uniformity and accuracy of internal and external reporting,
all of these steps are carried out by Generally Accepted Accounting Principles (GAAP).

Finance aims to comprehend financial data via the growth and strategy lenses. This includes
tracking and predicting trends, identifying possible financial trouble, and collaborating with others in
the business to discover areas of opportunity. Financial data dominates reporting and forecasting,
but KPIs and other non-financial indicators can also be utilized to produce insights. Finance often
leads the yearly budgeting process and assists top executives in making strategic goals, capital
investments, and financing decisions. A finance team is made up of people who, may or may not
necessarily be CPAs and understand GAAP and the accounting function.
Before pursuing a career in finance, it is critical to understand which qualities would help you thrive
in your profession. Spend some time analyzing the most crucial accounting skills to see whether
this framework accurately reflects your abilities.
It's fascinating to consider your possibilities at work before venturing into the financial sector.
Investigate local career opportunities and salaries to have a better picture of what to anticipate after
graduation. Job Opportunities include, for example, Investment Banking, Accounting, Business
Finance, Risk Management, and Consultation.
The industry is always evolving. When you enter the financial system, you must always comply with
the most recent industry changes, laws, and regulations. To stay up with the newest financial

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advancements, you will most likely need to pursue more schooling.

Accuracy is essential.
Important skills that are needed to pursue a career in finance are
1. Analytical Thinking
2. Accounting Skills 
3. Business Intelligence 
4. Financial Modeling
5. Financial Reporting
6. Cash Flow Management
7. Mathematics
8. Financial Management
9. Data Management 

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? Define 20 terminologies related
to project finance.

Task Q2. Solution: Project finance is used to finance a project sequentially. It is beneficial when
financing is necessary for a major industrial or renewable energy project. The entire sum is not
invested at once. Financial firms cannot examine your balance sheet in advance of a project in
project financing. They fund the project using the predicted cash flow. Financial institutions will
invest in a project if the cash flow appears to be sufficient and profitable. Typically, several equity
investors engage in the project as sponsors, and these loans are non-recourse (secured) loans
granted against project property. This is how project financing operates.
The goal of practicing corporate finance in an organization is to maximize the wealth of the
shareholders' money. Corporate finance is primarily concerned with the sources of cash and the
optimal capital structure. Let's look at an example
Finlead Ltd. borrows 50% of the capital from creditors with the promise to repay 15% within five
years. And the remainder is sourced from their equity stockholders. They pay a dividend, and the
dividend cost is 10% of profits. These 15% and 10% constitute their cost of capital, which they
strive to lower by all means possible. As a result, businesses must choose a reasonable debt-
equity ratio (now 50:50) that will lower their cost of capital.
At the same time, if they can cut their overall cost of capital (both debt and equity), they will be able
to keep more earnings or consider reinvesting profits back into the firm. Corporate finance will
assist Finlead Ltd. in determining these issues and determining the best solution.

Points of Corporate Finance Project Finance

difference
Stage Corporate finance is being introduced in Companies that operate projects

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the early stages of the firm. When a firm
is just starting up, corporate finance is the
best way to fund it.
Proof of In the case of corporate financing, the
concept financier seeks "commercial proof of
concept," which is revenue, in the early
stages of the firm.
Risk investor’s risk is much higher than
normal.
Returns When the risk is higher, so are returns
(ROI). Still, some investors are willing to
accept lesser profits to minimize their
impact on society and the environment (if
any).
Collateral The financier usually gives the loan on
the assets of the company.
Decisional Before investing, investors examine the
basis company's balance sheet.
equity Equity is a type of corporate ownership
that comes with a number several. First,
there would be voting rights, followed by
management classifying equity ownership
(common vs. preferred).
typically seek the assistance of project
financiers after three years or less in
operation. They are currently in need of
growth.
As is conventional in project finance,
they look for the projected cash flow.
Comparatively, the risk is much lower.
As the risk is lower and the payment is
given from the cash flow (principal
+interest), the returns are usually
lesser.
The financier looks at the project assets
as collateral.
The financiers examine the projected
cash flow by using financial modeling.
Equity includes a variety of direct
investments such as mezzanine debt,
grants, cash, and other types of
financing.

Regardless of the differences, corporate finances frequently enter the Project Finance realm and
are effective in funding specific initiatives. Corporate Finance and Project Finance have quite
distinct meanings and functions in theory.
As a result, unlike Corporate Finance, Project Finance does not affect or undermine the business
balance sheet because the right to file an asset in the event of default, extends only to the project assets
(and additional collateral provided if applicable) and not to the parent company.
.
1. Currency Basket
A situation where selected currencies (baskets) are combined to form a common entity. The
value of individual currencies is usually weighted according to various economic criteria, such
as the proportion of foreign trade in a country's total trade, gross national product, and its
importance in world trade.

2. Credit Risk
A risk that the counterparty of a financial transaction cannot fulfill the contract (default) due to
bankruptcy or other reasons, resulting in financial loss to the asset holder. Sometimes referred
to as the default risk.

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3. Bullet
One-time repayment. Loan balances are often amortized with little or no amortization. Also
known as the balloon payment.

4. Bridge Financing
Usually, a form of short-term or medium-term interim funds to close the funding gap before long-
term funds become valid and established

5. Internal Rate of Return (IRR)

A discount rate that equalizes the present value of future cash flows to the initial investment.

6. Hard Currency
Currencies that the market believes are likely to retain their value against other currencies
throughout some time unlikely to be compromised by inflation. Hard currencies are usually
freely convertible.

7. Greenfield
Often used to refer to a proposed facility built from scratch without existing infrastructure.

8. Front-end fee
A fee is calculated d as a percentage of the face value of a security issue, paid one at issue
(front end), rather than a percentage fee paid annually.

9. Forward Market
A market in which participants agree to trade goods, securities, or forex at a fixed price at a
specified time in the future. Unlike futures and options, the futures market is traded through the
forex dealers of financial institutions rather than organized exchanges. Futures contracts are not
a negotiable means and settlements are usually expected to be made by the delivery of the
actual currency.

10. Force Majeure

An event beyond the control of one or both parties that prevents them from fulfilling their
contractual obligations.

11. Expropriation
Usually a state acquisition of a company or project in exchange for compensation. Creeping

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Smart Task Submission Format

expropriation occurs when the government gradually takes over assets through taxation,
regulation, access, or legal changes.

12. Escrow
A certificate that is signed and sealed, but delivered on the condition that it does not take effect
until the specified event occurs. It takes effect when this event occurs and cannot be undone in
the meantime. Banks often maintain escrow accounts where funds are stored to pay taxes,
mortgage insurance, and so on.
13. Multilateral Lending Agencies
Organizations co-owned by a group of countries that help promote international and regional
economic cooperation. In particular, these credit bureaus may have purposes such as
supporting the development of member countries and promoting social and economic growth.
Also known as a "multilateral institution". See also bilateral agencies. Export credit agency.

14. Invoice Discounting

Invoice discounting is a type of loan that is based on the company's unpaid invoices, but the
company does not have to relinquish control of those invoices.

15. Put-or-Pay Contract

A contract in which one party agrees to supply raw materials, products, or services for a
specified period ofperiodcified price and, if alternative supply is not possible, pay for it.

16. Working capital

A portion of the company’s capital is used in dis day-to-day trading operations. It consists of
current assets (mainly trading stock, accounts receivable, cash) minus current liabilities
(mainly accounts payable).
Working Capital = Current Assets – Current Liabilities
17 Performance Bonds
Performance bonds, also known as contract bonds, are guarantees issued by an insurance
company or bank. Performance Guarantee guarantees the project owner that the construction
of the project is fully completed by the project contractor. If the project contractor does not
complete the construction, goes out of business, or does not meet certain performance criteria,
the performance guarantee issuer will indemnify the project owner. Performance Bonds are a
required component of EPC contracts or other turnkey construction contracts.

18. NPV
Net present value is the discounted value of investment cash inflow minus discounted value
of cash outflow. To be reasonably profitable, the NPV of the investment must be greater than

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Smart Task Submission Format

zero.
19. Original and Stripped Bonds
A bond is issued by an investment banker in exchange for a coupon or the maturity portion of
the original bearer bond. The original bond is trusted by an investment banker. Stripped bonds
are essentially zero-coupon bonds created by investment bankers
20. Set off the C clause
Claims from those who are alleged to be borrowing money that the amount should be reduced
because others are borrowing his or heney.

500 Words (Max.)

Task Q3:What is non-recourse debt/loan? What is mezzanine finance, explain with an
example.

Task Q3 Solution: Non-recourse debt is a form of loan that is secured by collateral, which is
typically the property. If the borrower defaults, the issuer may seize the collateral but may not
pursue further repayment from the borrower, even if the collateral does not cover the whole amount
of the defaulted amount. This is one case when the borrower is not personally liable for the loan.
Non-recourse debt is riskier to the lender than recourse debt since the resale value of the collateral
can sometimes fall below the loan total throughout the course
Non-recourse debt is a form of loan that is generally backed by property as collateral.
Lenders offer higher interest rates on non-recourse loans to compensate for the increased risk (the
collateral's value falling below the loan amount).
Non-recourse debt is distinguished by substantial capital outlays, lengthy loan terms, and unclear
revenue sources.
Non-recourse loans often have loan-to-value ratios of no more than 60%.
Recourse debt permits the lender to pursue the borrower for any remaining balance after liquidating
the collateral. As a result, to compensate for the increased risk, lenders charge higher interest rates
on non-recourse lending.

Mezzanine financing is a mix of debt and equity financing that offers the lender the opportunity to
convert the debt to an equity stake in the firm in the event of a default, usually after venture
capitalists and other senior lenders have been paid. It exists in terms of risk between senior debt
and equity.

Mezzanine debt includes equity instruments. Attached, commonly referred to as warrants, which rai
the value of the subordinated debt and provide for additional flexibility when dealing with
bondholders. Mezzanine finance is often connected with acquisitions and buyouts, and it can be

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used to favor new owners above current owners in the event of bankruptcy.
Mezzanine financing is a combination of debt and equity financing that allows businesses to
acquire capital for specialized projects or to assist with acquisitions.
Mezzanine financing is also employed in mezzanine funds, which are pooled assets similar to
mutual funds that provide mezzanine financing to highly qualified enterprises.

In a mezzanine financing example, Bank ABZ provides Company ZEN, a maker of surgical devices,
with $15 million in a mezzanine loan financing. The financing was used to replace a higher-interest
$10 million credit line with better conditions. Company ZEN increased its operating capital to assist
bring new goods to market and paid down a higher-interest loan. Bank ABZ will receive 10%
interest payments each year and will be allowed to convert the loan to an equity holding if the firm
defaults. Bank ABZ was also able to prevent Company ZEN from borrowing further cash and
impose specific financial ratio requirements on it. In the case of preferred stock, business 123
issues Series B 10% Preferred Stock with a par value of $25 and a liquidation value of $500. When
funds are available, the stock will pay out periodic dividends until the maturity date is reached. The
comparatively high liquidation value is a takeover defense that makes acquiring the shares for such
reasons unprofitable.

500 Words (Max.)

Task Q4: Explain in detail with reasons what sectors are or which type of projects are
suitable for project finance?

Task Q4 Solution: The financial study of a whole project life cycle is known as project financing.
Profit margin analysis is commonly used to examine if the economic advantages of a project
outweigh the economic expenses. Long-term CAPEX growth initiatives require extensive analysis.
The first phase in the study is to identify a financial structure, a mix of debt and equity, that will be
utilized to fund the project. Then, identify and analyze the project's economic advantages to see if
they outweigh the expenses. Project finance is the long-term financing of infrastructure and
industrial projects based on the project's predicted cash flows rather than the sponsors' financial
sheets. Typically, all of the project assets are used to secure the finance.

All project assets, including revenue-generating contracts, are often used to secure finance.
In India, project financing is utilized for both greenfield and brownfield projects in sectors such as
public infrastructure (roads, airports, railways, and ports, among others).
Power generation (solar, thermal, wind, hydro), energy transport, and so on.
Construction.
Manufacturing (cement).
Education.
Health-care services.
Communication.
In today's environment, business is moving at a fast pace. Commodities are continually in demand

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and supply all over the world. In the market, the company that balances demand with supply wins.

Project financing has also become an important link between the supply and demand markets.
If a trader has 4-5 brands for a specific product, such as paint, he tends to sell the best brand,
which provides him with a good margin; in exchange, these brands venture into project finance,
such as third-party financers, who make payments immediately for the company and receive
payment from the trader by providing him with a 60-day credit period.
The three-way business strategy benefits the trader, the firm, and the project financier. In these
approaches, the company grows beneficially. All businesses should implement these.

500 Words (Max.)

Task Q6 :

Task Q6 Solution :

500 Words (Max.)

Please add/delete blocks if needed.

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