mr[1]. bijoy-construction project finance
TRANSCRIPT
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-Kumar Bijoy
Financial Aspects of Site
Organization & Planning
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What is Project?
Any undertaking that has definite, final objectives representing specific values
to be used in the satisfaction of some need or desire.
Time, Cost and Performance: hitting the bulls eye on all the three counts is
essential for the success of a project.
Cost
Performance
Time
i=3
S = Wi Ri
i=1
Where 1 to 3 = Time, Cost and Performance.Wi = weight assigned to each factor
Ri = degree of success in each factor
Once the Project is feasible on Commercial and Technical front FinancialProjections
are made for it.
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DEVELOP
CONSTRUCTION PLAN
DEVELOP GENERAL AND
ADMINISTERATIVE PLAN
DEVELOP MANUFACTURING
PLAN
ESTIMATE TOTAL PROJECT COST
ESTIMATE FINANCING NEED
PREPARE PROFORMA INCOME STATEMENT
EVALUATE PROJECT FEASIBILITY
DOES PROJECT SATISFY INVESTMENT DECISIONCRITERIA?
TERMINATE
NO YES
ANALYZE PROJECTIONS OF
OPERATING CONDITIONS
The various steps in financial analysis are as follows:
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IS SENSITIVITY ANALYSIS NECESSARY?
ANALYZE PROJECTIONS OF OPERATING CONDITIONS
CONDUCT SENSITIVITY ANALYSIS
IS RISK ANALYSIS NECESSARY?
CONDUCT RISK ANALYSIS
IS PROJECT FEASIBLE?
TERMINATE PREPARE INVESTMENT
PROPOSAL
NO
NO
NO
YES
YES
YES
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Three important components of financial appraisal
are:
Cost of the Project
Means of finance
Projected Working results
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Generally the Cost of the Project includes:
Land
Site development
Buildings
Machinery
Miscellaneous Fixes AssetsPreliminary Expenses
Pre-operative Expenses
Provision for contingencies
Margin money for WC
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Generally the Means of Finances are:
Equity Capital
Preference Capital
Debenture Capital
Term LoansDeferred Credit
Bill Rediscounting Scheme
Seed Capital Assistance
Unsecured LoansLeasing and Hire Purchase
Securitization
Overseas Funds: GDR/ ADR/ Foreign Bonds
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Projected Working results depend upon
Product Mix
Installed capacity
Capacity Utilization
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Estimating the income from the project in terms of
cash flows is based on the following principles:
All costs and benefitsin terms of cash flow i.e. non cashcharges are added back
Cash flows are post tax terms.
Cash flows measured in incremental terms.
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Unsophisticated or Traditional or Non- Discounted Criteria
ARR
PBP
Urgency
Sophisticated or Time-Adjusted or Discounted Criteria
NPV
IRR
BCR/NBCR
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Social Cost Benefit Analysis :
SCBA is required due to
Market imperfections
Externalities Taxes and Subsidies
Concern for Savings
Concern for Redistribution
Merit Wants
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UNIDO approach for SCBA
Calculation of financial profitability at MP.
Shadow Pricing of resources to obtain net benefit at economic
prices.
Adjustment for the projects impact on savings and investment.
Adjustment for the projects impact on income distribution.
Adjustment for the projects production or use of goods whose
social values are less than or greater than their economic values.
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