INSTITUTE –University School of

Business
DEPARTMENT -Management
MBA
Project Finance and Financial Modelling
: 22BAT-736
MSC: Dr. Rakhi Arora
Assistant Professor
Chandigarh University

DISCOVER . LEARN . EMPOWER

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 Financial Analysis

Course Outcome
Course Description Blooms
Outco Taxonomy
me Level
1 To understand the basic project financing framework, Understand/ Will be covered in this
concepts and process of project finance, Remember lecture
2 To apply the necessary qualitative and quantitative Apply
tools and techniques for mitigation of the project risk
3 To evaluate different project financing analysis Analyze
techniques to compare the outcomes of different
projects
4 To structure and appraise financing for large & Evaluate
medium projects
5 To utilise the understanding of financial modelling to Design/Create
develop financial models for projects
https://www.expertmile.com/
 Break Even Analysis
• Break Even Analysis in economics, business, and cost accounting refers
to the point in which total cost and total revenue are equal.
• A break even point analysis is used to determine the number of units or
dollars of revenue needed to cover total costs (fixed and variable costs).

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BEP
• Break even quantity = Fixed costs / (Sales price per unit – Variable cost
per unit)

Where:
• Fixed costs are costs that do not change with varying output (e.g.,
salary, rent, building machinery).
• Sales price per unit is the selling price (unit selling price) per unit.
• Variable cost per unit is the variable costs incurred to create a unit.

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WHY
Using a Break-Even Analysis, you can answer questions like:
• What are the projected profits and losses at any given output level?
• At what minimum sales level do you avoid making a loss?
• Do your sales projections for a new product exceed break-even?
• If you drop a product, will your break-even improve?
• How will raising or lowering prices affect your profitability?
• If costs increase, what is the effect on your break-even position?
• How does investing in facility improvements affect your break-even point?

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Method
Calculating the Break-Even Point
•Determining the break-even point involves a simple mathematical equation. You reach break-even at the
point where total costs (TC) equal total revenues (TR), or
•TC = TR
•Total costs have fixed and variable components:
•Fixed costs (FC) remain the same, regardless of your output. Rent, insurance, and base salaries are
examples of fixed costs.
•Variable costs (VC) change with the number of units produced or sold. Examples are materials, sales
commissions, and direct labor costs. Therefore, total variable costs (TVC) equal the variable costs
multiplied by the number of units, or TVC = n x VC, where n is the number of units.
•Total costs equal total fixed costs plus total variable costs: TC = FC + (n x VC).
•You can see how these costs vary with the number of units sold in next

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Formula
• Total revenue is the price charged per unit multiplied by the number of units produced or sold:
TR = n x P, where P equals the unit price.
• Again, you can see the line for Total Revenue in figure 1, with break-even occurring where the TR
line crosses the TC line.
• You can calculate the break-even point by expanding the break-even equation:
• TC = TR
FC + (n x VC) = n x P
• Solving for n gives you the number of units you need to break even:
• n = FC/(P – VC)
• If you have a specific profit target, you can use the break-even equation to calculate the number of
units you must sell to achieve that target:
• n x P = FC + (n x VC) + Profit
n = (FC + Profit)/(P – VC)
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Example
• Let's imagine that you're considering launching a new product. Market research has shown that customers
will pay $115 for it, and your sales team is confident that they can sell at least 500 units per month. The
equipment you'll need to produce the product costs $900,000 and this will be spread over three years, giving
you a fixed cost of $25,000 per month. You need to decide if the product is financially viable.
• Fixed costs/month $25,000
• Variable costs/unit:
• Direct labor $20
• Direct materials $15
• Shipping $5
• Sales commission $10
• Total VC/unit $50
• Price/unit $115
• To calculate the break-even point, use this equation:
• n = FC/(P – VC)
• n = 25,000/(115 – 50)
• n = 384.6
• The break-even point is 385 units per month.

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Assessment Pattern

Components HT-1 HT-2 Assignment Surprise Business Quiz GD Forum Attendance Scaled
Test Marks
Max. Marks 10 10 6 4 4 4 2 40

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References
•Text Books:
•1. Edward Yescombe, Principles of Project Finance, Yecombe Consulting Ltd.,
Academic Press
•2. Michael Rees, Principles of Financial Modelling: Model Design and Best
Practices Using Excel and VBA , The Wiley Finance Series)

•Reference Book:-
•1. Edward Bodmer, Corporate and project finance modeling, Wiley Finance Series

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THANK YOU

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