VCE Summer Internship Program 2021

Smart Task Submission Format

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

Email-ID ayushigupta78286@gmail.com

Smart Task No. 1

Project Topic Financial modelling [infra]

Smart Task (Solution)

Task Q1 :
1. 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 : The discipline of finance is multifaceted and involves managing

investments and financial resources to maximize financial performance. It encompasses
a wide range of tasks including risk management, lending, investing, and budgeting,
with the main objective being the sound financial decision-making necessary to meet
personal or corporate goals. Finance deals with matters of wealth accumulation,
investment strategy, and capital allocation in both personal and corporate contexts. It is
an ever-evolving field that directs the distribution of resources to promote sustainability
and growth in economic systems.
In contrast, the primary focus of accounting, a related but separate field, is the
methodical recording, summarization, and reporting of financial transactions. Finance
makes decisions looking ahead using the historical data provided by accounting, which
is required for financial statements. Accounting is primarily concerned with maintaining
accuracy, compliance, and adherence to financial reporting standards, while finance
involves strategic planning, analysis, and the assessment of risk and return.

In order to pursue a lucrative career in finance, one must understand a number of core
ideas. It is crucial to comprehend the Time Value of Money (TVM), which computes
present and future values. Additionally, navigating financial markets requires a strong
understanding of the dynamics of risk and return. Understanding financial statement
analysis well gives one insight into the financial health of a company. while assessing
investment opportunities is made easier with an understanding of capital budgeting.
Making effective decisions also requires knowledge of economic principles, financial
markets, and instruments. Those who want to work in risk management, investment
banking, or financial analysis will find that having a solid understanding of these
fundamental concepts gives them the tools they need to successfully negotiate the
challenges of the finance industry.

ST Solution Page 1 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

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 : Large-scale infrastructure or development projects can benefit from
project finance, a specialized form of funding where the main collateral is the project's
assets, cash flows, and risks. In contrast to corporate finance, which is primarily concerned
with funding and overseeing an organization's general operations, project finance is
designed to provide funding for specific projects. Within the context of project finance, the
project functions as an independent entity, and the financing is obtained by taking into
account the project's projected cash flows instead of the sponsoring company's overall
creditworthiness.
he division of risks and liabilities is the essential distinction. The assets and income
streams of the project are segregated from the sponsor's other business ventures in project
finance. Project financiers can evaluate and handle project-specific risks thanks to this
isolation, which keeps the company's whole balance sheet hidden. Project finance is
frequently employed in endeavors that have protracted gestation periods, significant capital
needs, and distinct revenue streams, like those involving energy, infrastructure, or natural
resources.

It is difficult to classify project finance under corporate finance due to the substantial
differences in the risk profile and financial structure. Project finance is better suited for
endeavors with unique financial and operational characteristics because it necessitates a
customized approach to mitigate project-specific risks, while corporate finance addresses
the more general financial management of entire company.
A concession agreement is a formal contract that gives someone the authority to create,
run, and maintain a project.

The Debt Service Coverage Ratio (DSCR) is a ratio used to assess a project's capacity to
pay back debt.

Return on equity investment in a project is known as equity IRR, or internal rate of return.

Sponsor: Organization starting and managing a project.

Lender's Engineer: A third-party specialist who evaluates a project's viability for lenders.

Contract securing the sale of project output is known as an offtake agreement.

Base Case: The first financial model predicting the feasibility of the project.

Construction Finance: Provides funds for the building phase of a project.

ST Solution Page 2 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

Unforeseen events that release parties from contractual obligations are known as force
majeure.

Recourse financing gives the lender the right to seize project assets in the event of a
default.

Developing a project on undeveloped land is known as a "greenfield project."

Consortium: A collection of businesses working together on a project.

Mezzanine financing is a type of financing that sits in between debt ans equity’.
Phases of a project's life cycle, from conception to execution and use.
Tariff: The cost of project-related goods or services.

Public-Private Partnership (PPP): The working together of the public and private sectors to
develop projects.

Risk pertaining to the sound financial standing of parties to a contract is known as

counterparty risk.

Technical Due Diligence: Technical aspects of the project are evaluated.

A financial tool that guarantees payment in project transactions is the letter of credit (LOC).

Takeout Financing: Long-term funding to take the place of short-term project funding.

ST Solution Page 3 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

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

Task Q3 Solution : A non-recourse loan or debt is a form of financing where the borrower is
not held personally responsible for loan repayment. Put another way, should the borrower
default on the loan, the lender's options are restricted to the assets used as collateral; the
borrower's personal assets are not subject to collection. When the underlying asset acts as
collateral, this kind of financing is frequently utilized in project and real estate finance.
Because their personal assets are not at risk in the event of a default, borrowers who take
out non-recourse loans have some level of protection.

Conversely, mezzanine finance is a hybrid type of funding that blends aspects of equity and
debt. It usually entails supplying subordinated debt, which has an equity component like
warrants or options and is ranked lower than senior debt in terms of repayment priority. In a
capital structure, mezzanine financing bridges the gap between senior debt and equity.
Mezzanine financing, as opposed to traditional debt, permits a greater degree of leverage
and offers the lender the possibility of receiving returns that resemble equity in the event
that the business succeeds.

Foe example :
Consider a business that is looking to raise money for a significant expansion. With the
recently acquired assets serving as collateral, it obtains a non-recourse loan for a sizeable
amount of the project's cost. The business may use mezzanine financing to close the
remaining funding gap. In this instance, subordinated debt with an equity kicker is used by a
lender to provide mezzanine financing. Because there is an attached equity component, the
mezzanine lender will profit from both the interest on the debt and any potential increase in
the company's value if the project is successful. The senior lender has a higher degree of
security because the mezzanine lender's claim is subordinate to the senior debt in the event
that the project encounters difficulties.

ST Solution Page 4 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

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

Task Q4 Solution : Project finance is a type of funding that works well for large-scale
initiatives with predictable revenue streams, lengthy payback periods, and high upfront
capital needs. Project finance is advantageous to a number of industries because it can
distribute risks and offer a well-organized framework for funding. Toll roads, bridges,
airports, and ports are a few examples of infrastructure projects that are excellent
candidates for project financing because they frequently require sizable capital investments
and provide consistent cash flows over an extended period of time. Power plants and
renewable energy installations are examples of energy projects that fit well with project
finance structures because they require large upfront investments but provide steady
revenue streams over the course of their operational lives.

Exploration and development for natural resources and extractive industries, like mining,
oil, and gas, frequently need large amounts of funding. By securing funding based on
projected cash flows, project finance helps businesses in these industries reduce the risks
related to exploration and changes in commodity prices. Project finance is advantageous for
telecommunications projects because it can help with the significant upfront costs and
long-term revenue potential, particularly for those that involve the development of extensive
infrastructure such as fiber optic networks.

Project finance is advantageous for real estate development projects, which include
residential, commercial, and industrial complexes, because the finished product acts as
collateral. Project finance is appropriate for water and environmental projects because they
frequently have long gestation periods and steady revenue streams, such as water
treatment facilities and environmental remediation programs.

To put it simply, projects for which traditional financing structures might not be suitable
because of the particular risks and features of the project are best suited for project finance.
Project finance is a useful tool for funding complex and capital-intensive endeavors across
various sectors because it can be tailored to the unique cash flow and risk profile of each
project.

ST Solution Page 5 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

Task Q6 :

Task Q6 Solution :

500 Words (Max.)

Please add / delete blocks if needed.

ST Solution Page 6 https://techvardhan.com