COST OF PROJECT

Conceptually, the cost of project represents the total of all items of outlay associated with a
project which are supported by long-term funds. It is the sum of the outlays on the following:

• Land and site development

• Buildings and civil works
• Plant and machinery
• Technical know-how and engineering fees
• Expenses on foreign technicians and training of Indian technicians abroad
• Miscellaneous fixed assets
• Preliminary and capital issue expenses
• Pro-operative expenses
• Margin money for working capital
• Initial cash losses
 Financial Projections

Balance Sheet

Cost of Project
and Time Phasing Cash Flow
Statement

Depreciation Means of Finance

and Time Phasing
Cost of
Production
Interest and
Working Capital Loan Repayment Interest on
Needs WCA

Estimate of
Working Results
Production Plan
Tax Factor
Working
Capital
Advance (WTA)
Projected Sales
Means of finance
• To meet the cost of the project the following means of

finance are available:

• Share capital
• Term loans
• Debenture
• Deferred credit
• Incentive sources
• Miscellaneous sources
ESTIMATES OF SALES AND PRODUCTION

Sales and production are closely inter-related. Hence they may

be estimated together. For this purpose, the format given in
exhibit 6.2 may be employed.
Estimated of Production and Sales: -
Product Product
 
1st 2nd 3rd 4t   1s 2n 3r 4t
h t d d h
Yr. Yr. Yr. Yr.   Yr. Yr. Yr. Yr.

1. Installed capacity (qty. 2. Per annum Sales (qty.)

2. Value of sales (in ‘000 of rs.) 3.No. Of working days
3. No. Of shifts
4. Estimated production per day (qty.)
5. Estimated annual production (qty.)
6. Estimated output as % of plant capacity
PROJECTED CASH FLOW STATEMENT

The cash flow statement shows the movement of cash into and
out of the firm and its net impact on the cash balance within the
firm.
Sources of Funds: -
1. Share issue
2. Profit before taxation with interest added back
3. Depreciation provision for the year
4. Development rebate reserve
5. Increase in secured medium and long-term borrowings for the project
6. Other medium/long-term loans
7. Increase in unsecured loans and deposits
8. Increase in bank borrowing for working capital
9. Increase in liabilities for deferred payment (including interest) to
machinery suppliers
10.Sale of fixes assets
11.Sale of investments
12.Other income (indicate details)
Total (A)
Disposition of Funds
1. Capital expenditure for the project
2. Other normal capital expenditure
3. Insurance in working capital*
4. Decrease in secured medium and long-term borrowing
-- All India institutions
-- SFCs
-- Banks
5. Decrease in unsecured loans and deposits
6. Decrease in bank borrowings for working capital
7. Decrease in liabilities for deferred payments (including
interest) to machinery suppliers
8. Increase in investments in other companies
9. Interest on term loans
10. Interest on bank borrowings for working capital
11. Taxation
12. Dividends
--Equity
--Preference
13. Other expenditure (indicate details)
Total (B)
--Opening balance of cash in hand and bank
--Net surplus/deficit (A – B)
--Closing balance of cash in hand and at bank
IIIustration : To illustrate how the projected cash flow
statement is prepared let us consider a simple example. The
balance sheet of Bhavishya enterprises at the end of year n (the
year which is just over) is as follows:
Liabilities   Assets  

Share capital 100 Fixed assets 180

Reserves and surplus 20 Investments -

Secured loans 80 Current assets 180
Unsecured loans 50 Cash 20
Current liabilities 90 Receivables 80
Provisions 20 Inventories 80
  360   360
The projected income statement and the distribution of
earnings for the year n + 1 is given below:
Sales 400
Cost of goods sold 300
   
Depreciation 20
Profit before interest and 80
taxes
Interest 20
Profit before tax 60
Tax 30
Profit after tax 30
Dividends 10
Retained earnings 20
During the year n + 1, the firm plans to raise a secured term loan 20 Lacs,
repay a previous term loan to the extent of Rs 5 Lacs
, and increase unsecured loans by Rs 10 Lacs .
Current liabilities and provisions are expected to remain unchanged.
Further, the firm plans to acquire fixed assets worth 30 and increase its
inventories by 10.
Receivables are expected to increase by 15.
Other assets would remain unchanged, excepting cash.
The firm plans to pay Rs 10 by way of equity divided.
Given the above information, the projected cash flow statement of
bhavishya enterprises is shown in exhibit 6.6.
Project cash flow statement of bhavishya enterprises
Sources of funds    

Profit before tax with   80

interest added bank
Depreciation   20
Increase in secure loans   15
Increase in unsecured loans   10
  Total(A) 125
    
Disposition of Fund
Capital expenditure   30
Increase in working capital   25
Interest   20
Taxation   30
Dividends – Equity   10
  Total(B) 115
Opening balance of case in hand and at   20
bank
Net surplus/deficit (A – B)   10
Closing balance of cash in hand and at bank   30
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