PROJECT FINANCING (Assignment)

1. Project report

2. Capital rationing - pptThe act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the budget.

Limiting a company's newinvestments, either by setting acaponpartsof thecapital budgetor by using a highercost of capitalwhen weighing themeritsof potential investments. This might happen when acompanyhas not enjoyed goodreturnsfrom investments in the recent past.Capitalrationing also couldtakeplace if a company hasexcess production capacity on hand .Capital rationing is technique which is used with capital budgeting techniques. Capital rationing technique is used when company has limited fund for investing in profitableinvestment   proposals. In other words Capital rationing is a strategy employed by companies to make investments based on the current relevant circumstances of the company. 

Explanation of Capital Rationing With Simple Example 

For example, Company fixes his priority to invest his money in more profitable projects. Suppose a company has $ 1 million dollar and after using the

Profitability index technique of capital budgeting company found that three projects of $ 600000, $ 300000 and $ 400000 are profitable out of seven projects but if company has limited cash   of $ 1 million only. With this money, company can use capital rationing technique. Under this technique, if company sees that First and third proposal’s profitability index is high than second, then they will select only two projects combination out of three projects

3. Capital budgeting process - (ppt)

Capital Budgeting Process Evaluation of Capital budgeting project involves six steps:

First, the cost of that particular project must be known. Second, estimates the expected cash out flows from the project,

including residual value of the asset at the end of its useful life.   Third, riskiness of the cash flows must be estimated. This requires

information about the probability distribution of the cash outflows. Based on project’s riskiness, Management find outs the cost of

capital at which the cash out flows should be discounted. Next determine the present value of expected cash flows. Finally, compare the present value of expected cash flows with

the required outlay. If the present  value of the cash flows is greater than the cost, the project should be taken. Otherwise, it should be rejected.                                                                                                      OR

 If the expected rate of return on the project exceeds its cost of capital, that project is worth taking.Firm’s stock price directly depends how effective are the firm’s capital budgeting procedures. If the firm finds or creates an investment opportunity with a present value higher than its cost of capital, this would effect firms value positively.

4. Feasibility studies A feasibility study is an evaluation of a proposal designed to determine the difficulty in carrying out a designated task. Generally, a feasibility study precedes technical development and projectimplementation. In other words, a feasibility study is an evaluation or analysis of the potential impact of a proposed project.

Definition of Feasibility Studies: A feasibility study looks at the viability of an idea with an emphasis on identifying potential problems and attempts to answer one main question: Will the idea work and should you proceed with it?

Before you begin writing your business plan you need to identify how, where, and to whom you intend to sell a service or product. You also need to assess your competition and figure out how much money you need to start your business and keep it running until it is established.

Feasibility studies address things like where and how the business will operate. They provide in-depth details about

the business to determine if and how it can succeed, and serve as a valuable tool for developing a winning business plan.

5. Business strategies Business strategy is the

foundation of successful business. But there are,

of course, different types of business strategy.

The best business strategies must steer a course

between the inevitable internal pressure for

business continuity and the demands of a rapidly

changing world for revolutionary business

strategies.

But what is business strategy? Andrew Grove, who led

Intel to greatness, makes a clear distinction between

strategic action and strategic plans. He believes

that business strategy models should not: just be

statements of intent; come across like a political speech;

have concrete meaning only to management; concern

themselves with events far in the future or have little

relevance to today.

If you are unsure of how to write a business

strategy or what types of business strategy are right for

your business, try this as a simple exercise: take a piece

paper and at the bottom, write a brief account of where

the business is now. Then at the top, write where you

want the business to be in ‘x’ amount of years (you

decide the period). Next, in between the two write what

you need to do and when you to do it to get from the

bottom of the page to the top. This kind of

rough business development strategy shouldn’t take

more than an hour.

6. Environmental scanning ----- Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering.

There are three ways of scanning the business environment:

Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

Regular scanning - Studies done on a regular schedule (e.g. once a year)

Continuous scanning (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning because this allows the firm to act quickly, take advantage of opportunities before competitors do and respond to environmental threats before significant damage is done.

Environmental scanning is a data collection practice. It is aimed at collecting information about an environment such as an office or institution that can be used in planning, development, and ongoing monitoring by managers and supervisors. Once data has been collected with scanning it can be processed and analyzed to create a brief to be used in decision making.

Some environmental scanning is performed on an ad-hoc basis, as needed. This scanning is done in response to a specific issue or concern such as the need to plan for a new product launch. Regularscanning is conducted on a regular basis; an example might be an annual review of a working environment conducted with surveys, observation, and other study methods. In continuous scanning, an environment is constantly being scanned and analyzed. While a continuous process is time consuming and costly, it allows for rapid adaptations to changing situations.

One reason to use environmental scanning is in preparation for a major change such as a new facility, a big shift in policy, or a product launch. Scanning and gathering data before entering the planning stage is a useful tool to help identify weaknesses, opportunities, threats, and strengths. These can be built upon in the planning stage to create a strong and effective plan to address issues identified during environmental scanning. Failure

to collect information before starting plans can result in costly mistakes and missed opportunities.

Companies that use environmental scanning can move quickly when they identify a problem or an opportunity. This includes everything from a product release by a competitor that might threaten a company's market share to a security issue in an office. The data gathered in environmental scanning can be processed to develop an organized report to provide information to managers and other officers of the company who may be interested. Dispensing the information effectively is an important part of this practice, as data is useless if it never gets into the right hands.

Numerous tools can be used for environmental scanning. These include surveying employees to get information about working conditions, considering a workplace within a larger social and economic context, and evaluating company communications to determine what kinds of messages the company sends to the public. A third party may be called in to objectively evaluate or a company may scan internally. Using insiders can sometimes result in getting more information because insiders know where to look, but their bias can also affect the outcome of the scanning

7. Cost of project –

ppt

8. Means of project finance - Project finance is the long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. Usually, a project

financing structure involves a number of equity investors, known assponsors, as well as a syndicate of banks that provide loans to the operation. The loans are most commonly non-recourse loans, which aresecured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling.[1] The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.

Generally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound. Project finance is often more complicated than alternative financing methods. Traditionally, project financing has been most commonly used in the mining,transportation, telecommunication and public utility industries. More recently, particularly in Europe, project financing principles have been applied to public infrastructure under public–private partnerships (PPP) or, in the UK, Private Finance Initiative (PFI) transactions.

Risk identification and allocation is a key component of project finance. A project may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging markets. Financial institutions and project sponsors may conclude that the risks inherent in project development and operation are unacceptable (unfinanceable). To cope with these risks, project sponsors in these industries (such as power plants or railway lines) are

generally completed by a number of specialist companies operating in a contractual network with each other that allocates risk in a way that allows financing to take place.[2] The various patterns of implementation are sometimes referred to as "project delivery methods." The financing of these projects must also be distributed among multiple parties, so as to distribute the risk associated with the project while simultaneously ensuring profits for each party involved.

A riskier or more expensive project may require limited recourse financing secured by a surety from sponsors. A complex project finance structure may incorporate corporate finance, securitization, options, insurance provisions or other types of collateral enhancement to mitigate unallocated risk.[2]

Project finance shares many characteristics with maritime finance and aircraft finance; however, the latter two are more specialized fields

9. Profitability projection -

10. Effective demand – effective demand in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market. In the aggregated market for goods in general, effective demand is the same thing as aggregate demand when the demand for goods is influenced by spillovers from quantity constraints from other markets. The concept of effective supply parallels the concept of effective demand. The concept of

effective demand or supply becomes relevant when markets do not continuously maintain equilibrium prices

OR

Effective demand (in macroeconomics often seen as synonymous with "aggregate demand"), refers to the very simple economic idea that says that it's not enough to want something such as food or luxuries. One must also have money or other assets (purchasing power) or some product to sell in order to make that demand effective.

Many classical economists such as Adam Smith and David Ricardo embraced Say's Law, which says (in very simple terms) that "supply creates its own demand." This says that for every time there's an excess supply (glut) of goods on one market, there's a corresponding excess demand (shortage) on another. That is, there can never be a general glut in which there is inadequate demand for products at the macroeconomic level.

Economists such as Thomas Malthus and Jean Charles Leonard de Sismondi [1] struggled to show that Say's Law was wrong. In the process, they created and clarified the concept of effective demand. In the 20th century, John Maynard Keynes and Keynesian economics finished the job. In his economics, effective demand "creates its own supply." If demand is less than supply, this causes an unplanned accumulation of inventories, which leads to a fall in production and of labor employment and incomes. This starts a multiplierprocess which causes the economy to gravitate to an underemployment equilibrium.

11. Project rating index –

The steps involved in determining the project rating index are as follows

Identify factors relevant for project rating Assign weights to these factors ( the weights are supposed to reflect their relative importance) Rate the project proposal on various factors, using a suitable rating scale (Typically a 5-point scale or a 7-point scale is used for this purpose.) For each factor, multiply the factor rating with the factor weight to get the factor score Add all the factor scores to get the overall project rating index

12. Portfolio planning tools

13. Corporate appraisal One important reason for formulating marketing strategy is to prepare the company to interact with the changing environment in

which it operates. Implicit here is the significance of predicting the shape the environment is likely to take in the future. Then, with a perspective of the company’s present position, the task ahead can be determined. Study of the environment is reserved for a later article. This article is devoted to corporate appraisal. An analogy to corporate appraisal is provided by a career counselor’s job. Just as it is relatively easy to make a list of the jobs available to a young person, it is simple to produce a superficial list of investment opportunities open to a company. With the career counselor, the real skill comes in taking stock of each applicant; examining the applicant’s qualifications, personality, and temperament; defining the areas in which some sort of further development or training may be required; and matching these characteristics and the applicant’s aspirations against various options. Well-established techniques can be used to find out most of the necessary information about an individual. Digging deep into the psyche of a company is more complex but no less important. Failure by the company in the area of appraisal can be as stunting to future development in the corporate sense as the misplacement of a young graduate in the personal sense. How should the strategist approach the task of appraising corporate perspectives? What needs to be discovered? These and other similar questions are explored in this article.

MEANING OF CORPORATE APPRAISAL Broadly, corporate appraisal refers to an examination of the entire organization from different angles. It is a measurement of the readiness of the internal culture of the corporation to interact with the external environment. Marketing strategists are

concerned with those aspects of the corporation that have a direct bearing on corporate-wide strategy because that must be referred in defining the business unit mission, the level at which marketing strategy is formulated. Of these, the first four factors are examined in this article. Two important characteristics of strategic marketing are its concern with issues having far-reaching effects on the entire organization and change as an essential ingredient in its conduct. These characteristics make the process of marketing strategy formulation a difficult job and demand creativity and adaptability on the part of the organization. Creativity, however, is not common among all organizations. By the same token, adaptation to changing conditions is not easy. As has been said: Success in the past always becomes enshrined in the present by the over-valuation of the policies and attitudes which accompanied that success. . . . With time these attitudes become embedded in a system of beliefs, traditions, taboos, habits, customs, and inhibitions which constitute the distinctive culture of that firm. Such cultures are as distinctive as the cultural differences between nationalities or the personality differences between individuals. They do not adapt to change very easily.

Human history is full of instances of communities and cultures being wiped out over time for the apparent reason of failing to change with the times. In the context of business, why is it that organizations such as Xerox, Wal-Mart, Hewlett- Packard, and Microsoft, comparative newcomers among large organizations, are considered blue-chip companies? Why should United States Rubber, American Tobacco, and General Motors lag behind? Why are General Electric, Walt Disney, Citicorp, Du Pont, and 3M continually ranked as “successful” companies? The

outstanding common denominator in the success of companies is the element of change. When time demands that the perspective of an organization change, and the company makes an appropriate response, success is the outcome. Obviously, marketing strategists must take a close look at the perspectives of the organization before formulating future strategy. Strategies must bear a close relationship to the internal culture of the corporation if they are to be successfully implemented.

FACTORS IN APPRAISAL: CORPORATE PUBLICS Business exists for people. Thus, the first consideration in the strategic process is to recognize the individuals and groups who have an interest in the fate of the corporation and the extent and nature of their expectations.

14. Sources of working capital (ppt)

Working CapitalThis is the short-term capital or finance that a business keeps. Working capital is the money used to pay for the everyday trading activities carried out by the business - stationery needs, staff salaries and wages, rent, energy bills, payments for supplies and so on. Working capital is defined as:

Working capital = current assets - current liabilities

Where:

current assets are short term sources of finance such as stocks, debtors and cash - the amount of cash and cash equivalents - the business has at any one time. Cash is cash in hand and deposits payable on demand (e.g. current accounts). Cash equivalents are short term and highly liquid investments which are easily and immediately convertible into cash. current liabilities are are short term requirements for cash including trade creditors, expense creditors, tax owing, dividends owing - the amount of money the business owes to other people/groups/businesses at any one time that needs to be repaid within the next month or so

ppt

15. Characterization of market 1. Effective demand in the past and present: To test the effective demand in the past and present , the starting pint typically is apparent consumption which is define = production + imports – exports – changes in stock level.  2.  breakdown of demand: Market segment may be defined by = nature of product , consumer group  and geographical.  3. Price:  4 types of price a) manufactures price quoted as FOB, price of CIF B) landed price for imported goods C) average wholesale price D) average retail price 4.Methods of distribution and sales promotion: the method of distribution may vary with the nature of the product . Capital goods , industrial raw materials and consumer products tend have different distribution channels.  5. consumers: age, sex, income, residence, profession, social background, Preferences, Habits, Attitudes , responses.

 6. supply and competition: the following lines may be gathered = location ,present ,production capacity, planned expansion, capacity utilization level, and cost structure. 7. govt policy: the role of government in flouncing the demand and market for a product may be significant. 

16. Demand forecasting

Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market.

A demand forecast is the prediction of what will happen to your company's existing product sales. It would be best to determine the demand forecast using a multi-functional approach. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast.

Determination of the demand forecasts is done through the following steps:

•  Determine the use of the forecast

•  Select the items to be forecast

•  Determine the time horizon of the forecast

•  Select the forecasting model(s)

•  Gather the data

•  Make the forecast

•  Validate and implement results

17. General source of business information

Business information encompasses a broad spectrum of sources that people involved in the world of commerce can turn to for data on and discussion of business-related subjects. These sources, which can range from daily newspapers and nationally distributed financial magazines to professional associates, colleagues, and social contacts, can be invaluable in helping small business owners to tackle various aspects of operations, such as marketing, product forecasting, and competitive analysis.

Writing in his bookBusiness Information: How to Find It, How to Use It, Michael R. Lavin commented that business information is of tremendous value in two fundamental aspects of operations: problem solving and strategic planning: "Information can be used to evaluate

the marketplace by surveying changing tastes and needs, monitoring buyers' intentions and attitudes, and assessing the characteristics of the market. Information is critical in keeping tabs on the competition by watching new product developments, shifts in market share, individual company performance, and overall industry trends. Intelligence helps managers anticipate legal and political changes, and monitor economic conditions in the United States and abroad. In short, intelligence can provide answers to two key business questions: How am I doing? and Where am I headed?"

Business analysts cite two primary sources of business information: external information, in which documentation is made available to the public from a third party; and internal information, which consists of data created for the sole use of the company that produces it, such as personnel files, trade secrets, and minutes of board meetings.

EXTERNAL BUSINESS INFORMATION

External information comes in a variety of forms—from printed material to broadcast reports to online dissemination.

PRINT INFORMATIONThe category of print covers not only a vast array of books and periodicals, but also includes microfilm and microfiche, newsletters, and other subcategories. State and federal government reports also fit into this category; indeed, Lavin described the U.S. Government Printing Office as "the largest publisher in the free world; its products can be

purchased by mail, telephone or through GPO bookstores in major cities."

Perhaps the most accessible documents in the print category are books and periodicals. Certainly business owners have a wide array of book titles to choose from, many of which find their way onto the shelves of public, business, and university libraries every year. In addition to books that provide general reference information on human resources management, start-up financing, product development, establishing a home-based business, and a plethora of other topics of interest to small business owners, the publishing industry has seen a surge of books that tackle more philosophical issues, such as balancing work and family life, establishing healthy personal interactions with co-workers and employees, the nature of entrepreneurialism, and many others.

Many other small business owners, meanwhile, get a considerable amount of their business information from print sources. As with books, entrepreneurs and established business owners (as well as corporate executives, human resource managers, and nearly every other category of person involved in business) can turn to a variety of periodical sources, each with their own target niche. Some magazines and newspapers, such asBusiness WeekandWall Street Journal,provide general interest coverage, while others (Forbes, Fortune, Inc.) provide more of an emphasis on subjects of interest to investors and executives in large firms. Still others—most notablyEntrepreneur, Small Business Start-Ups,andNation's Business(published by the U.S.

Chamber of Commerce)—publish information specifically targeted at small business owners. These magazines can provide entrepreneurs with helpful information on every aspect of operations, from creating a good business plan to determining which computer system is most appropriate for your enterprise.

Then there are the trade journals, an enormous subsection of print aimed at very select audiences. These trade journals, which typically provide narrow coverage of specific industries (journals targeted at owners of bakeries, amusement parks, real estate businesses, grocery stores, and a variety of other businesses can all be found), often contain valuable industry-specific information. Another subcategory of the specialized print category is the material published through business research services and associations such as Commerce Clearing House, the Bureau of National Affairs, and Dun & Bradstreet.

Finally, both government agencies and educational institutions publish a wide variety of pamphlets, brochures, and newsletters on a range of issues of interest to small business owners and would-be entrepreneurs. While government brochures and reports have long been a favored source of business information—in some measure because many of these documents are available free of charge—consultants indicate that valuable studies and reports compiled by educational institutions are often underutilized by large and small companies alike.

TELEVISION AND RADIO MEDIAThis source of business information is perhaps the least helpful of the

various external sources available to small business owners. Programs devoted to general investment strategies and the changing fortunes of large companies can be found, of course, but the broad-based nature of broadcasting makes it difficult, if not impossible, to launch programs aimed at narrow niche audiences (like dental instrument manufacturers or accounting firms, for example).

ONLINE INFORMATIONThe phenomenon of online information is burgeoning as much as computers are themselves. "The power of the computer to store, organize and disseminate vast amounts of information has truly revolutionized business publishing," noted Lavin. "Large online systems can help overcome the incredible fragmentation of published information. Many online vendors offer global search capabilities, allowing access to the contents of dozens of databases simultaneously, the equivalent of reading dozens of different reference books at the same time."

Many of these databases offer information that is pertinent to the activities of small business owners. As Ying Xu and Ken Ryan observed inBusiness Forum,the Internet includes data on demographics and markets, economics and business, finance and banking, international trade, foreign statistics, economic trends, investment information, and government regulations and laws. This information is provided by Internet news groups, online versions of newspapers and magazines, and trade associations. In addition, "many colleges, universities, libraries, research groups, and public bodies make information freely available to anyone with

an Internet connection," stated Robert Fabian inCMA—The Management Accounting Magazine."Often, the motivation is to make information available to people within the institution. But it can be less costly to provide general access than to screen access." He also noted that "increasingly, governments are publishing information on the Internet and insisting that organizations they fund also publish on the Internet. It's a practical way to move towards open government, and does make information, which is paid for by the taxpayers, far more accessible to those taxpayers (and any others with Internet access). The range of available information is impressive."

By the late 1990s, it was becoming easier than ever for small businesses to keep abreast of competitive and industry developments over the Internet. A number of information services sprung up to deliver personalized business information to online subscribers. These companies "are changing the way business information is delivered over the Internet," Tim McCollum wrote inNation's Business."They're bringing order and relevance to the boundless data available on the Web, repackaging information from newspapers, magazines, television, and wire services and delivering it to computer users based on their interests." The information may come in the form of e-mail messages, links placed on a special Web site, or headlines that appear as a screen saver and allow the computer user to click for further information.

CD-ROM INFORMATIONCD-ROM (compact disc read only memory) is a popular alternative to online services.

As the name implies, CD-ROM is not so much an interactive system; in usage it is close to traditional print. In fact, CD-ROM versions of such print staples as theOxford English Dictionaryare now commonly available. Business applications for CDROM include corporate directories such as Dun & Bradstreet'sMillion Dollar Diskand demographic statistics such as Slater Hall Information Products'Population Statistics. An advantages of CD-ROM over online services is the amount of data that can be stored. The primary drawback associated with business CD-ROM products is the absence of current information, although many publishers of CD-ROM products offer updates on an annual—or even more frequent—basis.

OTHER SOURCES OF BUSINESS INFORMATION

External sources of business information can be invaluable in helping a small business owner or entrepreneur determine appropriate courses of action and plan for the future. But researchers note that members of the business community often rely on personal contact for a great deal of their information.

"Common experience and the result of numerous research studies show quite clearly that managers, and indeed all seekers of information, frequently prefer personal and informal contacts and sources to published documents and formal sources generally," wrote David Kaye inManagement Decision."The reasons are well understood. A knowledgeable friend or colleague will often provide, not only the facts requested, but also advice, encouragement, and moral support. He or she may be able to evaluate the information supplied,

indicate the best choice where there are options, relate the information to the enquirer's needs and situation, and support the enquirer's action or decision. Many such personal contacts will of course be found within the manager's own organization, which is for many people the prime source of facts, knowledge, and expertise…. Any organizationis a complex information processing system in which actions and decisions are underpinned by an array of oral and written instructions, reports, regulations, information, and advice. Accordingly, many managers seldom look beyond the organization's boundaries in their search for information."

Business analysts note, however, that companies that do rely exclusively on internal information sources run the risk of 1) remaining uninformed about important trends in the larger industry—including new products/services and competitor moves—until it is too late to respond effectively; and 2) receiving skewed information from employees whose goals and opinions may not exactly coincide with the best interests of the business.

18. Delphi method The Delphi method is a systematic, interactive forecasting method which relies on a panel of experts. The experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments. Thus,

experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is believed that during this process the range of the answers will decrease and the group will converge towards the "correct" answer. Finally, the process is stopped after a pre-defined stop criterion (e.g. number of rounds, achievement of consensus, stability of results) and the mean or median scores of the final rounds determine the results.[1]

Delphi [pron: delfI] is based on the principle that forecasts from a structured group of experts are more accurate than those from unstructured groups or individuals.[2] The technique can be adapted for use in face-to-face meetings, and is then called mini-Delphi or Estimate-Talk-Estimate (ETE). Delphi has been widely used for business forecasting and has certain advantages over another structured forecasting approach, prediction markets.[3]

19. Project charts and layout

20. Plant location (paper notes)

In particular, the choice of plant location should be based on following consideration 

i) Availability of Raw material  (ii) Nearness to the potential market (iii) Location should be near to the source of operating power  (iv) Supply of labour (v) Transport and communication facilities 

(vi) Integration with other group of companies(vii) suitability of land and climate(viii) Availability of housing, other amenities and services(ix) Local building and planning regulations (x) Safety requirements (xi) Other like low interest on loan , spc grants , living std .

21. Criteria for choice of technology

22. Projected balance sheet

23. Financing agencies

24. Refinancing schemes

Refinancing refers to applying for a secured loan intended to replace an existing loan secured by the same assets. The most common consumer refinancing is for a home mortgage.

Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to pay off other debts, to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to liquidate some or all of the equity that has accumulated in real property during the tenure of ownership.

It is advisable to speak with a financial professional, familiar with your existing home loan, before deciding to refinance. Certain types of loans contain penalty clauses that are triggered by an early payment of the loan, either in its entirety

or a specified portion. Also, some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

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           Sunday, November 7, 2010

Refinance

 

Haiti Relief  

Don’t you think it is better to consolidate your debts under a single mortgage refinancing scheme. Then you are going to save thousands of dollars, your hard earned money. But before you barge in, just find out whether it is the right time to make your go. However for Californians there is a long array of Refinance options. 

 

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Refinance schemes help you cut down on your monthly payments or reduce the life-span of your loans, by giving you a lower interest rate or a new loan term. You could also benefit more if you use Refinance to pay off the debt over your credit cards or other installment loans. This reason behind this is interest over your mortgage may be tax-deductible, while in the other loan types it may be not so.

Some of the important points why you should consider Refinance is; you get a lower-rate mortgage, you can transform the adjustable rate mortgage to a fixed one, you can change a first and second mortgage into one lower rate mortgage and moreover you get sufficient cash for family expenses.

Even today the demand for Refinance loans is incredibly high. Providers of Refinance for home now helps homeowners in reducing their current interest rate and payments. They also help them out in attaining the cash they need for debt consolidation, home maintenance etc. Whether you are a homeowner with excellent credit, bad credit, slow payment histories, no income verification, or bankruptcies, Refinance will lend you a helping hand. 

Refinance providers specialize in all types of

home refinance loans. They offer "financial solutions" to allow homeowners achieve their financial objectives. Borrowers with good to excellent credit, are offered competitive rate programs and may borrow up to 100% financing. It includes fixed and adjustable rate programs spanning up to 30 years. Refinance throws open numerous alternatives to borrowers, on whom other conventional lenders may have turned their back.

The progressive and positive approach has been taken by Refinance groups towards the mortgage industry. It allows the Refinance providers to customize loans to match unique circumstances. Borrowers even if they lack in perfect credit history, proper income documentation, credible employment, low debt state, up-to-date mortgage payment histories, or other such things, the Refinance gives them the much needed support. TheRefinance providers work out situations individually and develop customized programs.Refinance realizes that a negative can result by chance or due to circumstances beyond the credit holder’s control. Refinance is the safe way open to them. Thus Refinance help them revive their current poor financial status, by helping them pay off some of their current bills.

Among various mortgage

programs Refinance offers, FHA and conventional refinance loans are important ones. This help one to refinance a current mortgage up to 100% with good credit history. Under the Refinance program at 100% CLTV (combined Loan To Value) with unlimited cash out is available. The benefits of 100% refinancing loan is as flexible as any other programs. The Refinance guidelines turns a Nelson’s eye towards those with past credit problems, since they are as flexible as conventional loan programs. Whatever be the case, Refinance stands together with the borrowers to help them sort out their financial worries.

California being a state with coastal property, financial districts, and wine & entertainment industries along with several other facilities has been a popular choice for residential settlements. Areas such as San Francisco, Orange County, Los Angeles, and San Diego showed greatest appreciation of home values. Low interest rates on California home loan,Refinance loans, an influx of people California, and seasonal buyers raising the demand for second homes and vacation rentals, gave a spurt to the market growth. 

With sudden increase in the home value in Californian, homeowners began taking advantage of schemes provided

 

by Refinance like Pay Option ARMs or Pick Up A Payment Plan, interest only, debt consolidation, and HELOC loans. These California home loans andRefinance loans allow borrowers to utilize equity in their homes to come over their financial constraints. The high price value of homes has helped Refinance to encourage buyers to buy more houses, they might not have dreamt of. However, experts are very much skeptical about the sustainability of record appreciation rates throughout California. 

In California refinance, Pay Option ARM (Adjustable Rate Mortgages) or or Pick Up A Payment Plan, is an adjustable rate mortgage with added flexibility. The flexibility helps making one among several possible payments on your mortgage every month. This facilitates better management of monthly cash flow. The low introductory start rate of the option permits you to make very low initial mortgage payments. The low qualifying rates allows you to qualify for more homes.

The minimum payment option eases your monthly payments. If the minimum monthly payment does not suffice to pay the monthly interest due, you can choose the interest-only payment option, by doing away with deferred interest. Pay Option ARM or or Pick Up A Payment Plan, offers at least two fully amortized payment choices, allowing a quicker loan

payback. If you chose to pay off the loan in time, you can make 30-year based, fully amortized payment. For quickest equity build-up, you can pick out the 15-year payment option. In most cases, you can also pay back the principal in addition. This will in turn reduce the amount you ought to pay in following months.

Pay Option ARM or Pick Up A Payment loan program of Refinance is the best bet if you wish to own the property for a short time span, and if you need affordability and flexibility in your monthly payment. However, if your choice falls on the minimum payment option in the early years, be prepared for possible increases in your monthly payment, all on a sudden. Pay Option ARM or Pick Up A Payment Plan loans provide 4 key types of payment options Minimum Payment, Interest-Only Payment, Fully Amortizing 30-Year Payment and Fully Amortizing 15-Year Payment 

Minimum Payment: Here the monthly payment is set for 12 months. The interest rate is the initial rate. Thereafter, the payment changes annually, subject to payment cap limitations, each year. Negative Amortization may occurs under this payment.

Interest-Only Payment: The interest-only payment option is provided, if the interest-only payment would be below the minimum

payment. Also, this option does not lead to principal reduction.

Fully Amortizing 30-Year Payment: You pay both principal and interest here. Your payment is calculated per month based on the interest rate of the previous month, loan balance and remaining loan term.

Fully Amortizing 15-Year Payment: The 15-year payment option helps you to payoff the loan faster and saves on total interest costs of a 30-year loan. Notably, this option is open only on the 30-year (or 40-year) term. The option remains void when the loan has been paid to its 16th year. 

Pay Option ARM or Pick Up A Payment Plan loan programs with many variations, provided by Refinance community, are gaining popularity day by day. However, the world time is fast changing! The increasing market inventory, procrastinated job growth, as well as unbelievably low affordability can retard the pace of home appreciation rates in California in the coming years. In this context it may be assumed that Refinance would have a bleak future.  

Cash Out RefinancingAs its name suggests, “cash out refinancing” is

a financing arrangement where the amount of money you receive from new financing exceeds the amount of your outstanding debt. So, for example, say you have a house that is worth $150,000, but where the outstanding mortgage is only $100,000. You need to borrow $30,000 to pay for your child’s college education – but you don’t want a personal loan because the financing costs are too high. In this case you can consider (a) applying for a second mortgage for the $30,000; or (b) doing a refinancing where you ask a lender to lend you $130,000, in return for which you’ll give the lender a mortgage over your house. Should the lender lend you the money, you repay your existing $100,000 mortgage loan and pocket the $30,000 to pay for your child’s college education. The second of these two scenarios is a cash out refinancing scheme.

Why Would I Want To Consider Cash Out Refinancing?Most of the realistic reasons why homeowners want to consider a cash out refinancing have already been mentioned – like to pay for a child’s college education, or to do some home decorating. However, one reason why more and more homeowners are considering cash out refinancing as a financing option, regardless of whether or not they have an immediate cash need, has something to do with a three-letter word - tax (Refinance). 

As a homeowner, with an outstanding mortgage loan, the interest part of your home mortgage loan repayments are tax deductible against your income. However, if you no longer have a home mortgage loan: you no longer have any entitlement to claim for a tax reduction of your income tax based on your home mortgage repayments. For this reason, it becomes lucrative and financially rewarding for those with money, as well as those without, to consider a cash out refinancing option every now and then so that they can maintain their income tax reduction entitlement (Refinance). 

Having said that: sadly the older you get the less likely it is that you’ll be able to obtain a mortgage over any significant period of time; say 10 to 20 years (Refinance). So, if you are close to your 50s, in the prime of your career earnings, coming near to the end of your mortgage repayments, this is exactly the time when you could do with a tax reduction – but you’re just about to lose it! In such an event, you should have considered a cash out refinancing option in your mid-40s, before it was too late, taken the holiday of a life-time, and then used the increased mortgage on your house as a tax reduction on your future earnings!

In short then, homeowners may want to

consider a cash out refinancing option to:

* pay for their child’s education;* consolidate their debt;* do home improvements;* use it as a tax avoidance scheme.

Are There Any Issues To Be Aware Of?Yes; because of its very nature, applying for cash out refinancing can take some time (california refinance). For example, to do cash out refinancing you need to have your house’s value appraised by an appraiser (of your lender’s choosing) to determine that the house’s value is indeed the same as what you say it is in your mortgage loan application form (Refinance). You also need to repay your existing lender, then arrange the mortgage for your new lender. This will all take time. Consequently, whilst cash out refinancing is a superb option available to homeowners, it can rarely be used if your financial needs, as a borrower, are immediate (Refinance).

Also, when considering the cash out refinancing option, you do need to give considerable thought to what fees and costs your existing lender may charge you. It’s very common to find, in mortgage loan agreements, terms that penalize borrowers if they try and make a full repayment before the completion of their existing mortgage loan – so check this out!

Any Other Consideration If I want to Do Cash Out Refinancing?Yes; as mentioned cash out refinancing is an excellent option – but you do need to consider some issues, as follows:

* Will my new lender penalize me if I do another cash out refinancing in a few years time?* What interest rate am I really paying? – check the Annual Percentage Rate (APR);* What fees will I need to pay? – like application fees; appraisal fees; etc.;* How soon will I need the money – and is a cash out refinancing going to give me the money soon enough?* Are there any restrictive covenants, in the new home mortgage loan agreement, meaning I cannot do what I want with the house?* Is there not a cheaper way of financing the borrowing?* Are my monthly repayments going to be higher or lower than they already are?* Can I refinance against the whole appraisal value? – the answer here is likely to be “no”. In most cases your refinancing lender will only allow you the opportunity to refinance up to 80 percent of the appraised value of the house – not 100 percent. In this regard, cash out refinancing is very similar in nature to a mortgage agreement – part equity / part debt borrowing.

And Finally…And so, if you’re looking refinance to repay your outstanding personal loan, put your children through school, or even pay for that second home near the beach, a cash out refinancing may be the best, and most sensible, option available to you!

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25. Financial leverage

The degree to which aninvestororbusinessis utilizing borrowedmoney.Companiesthat are highly leveraged

may beat riskofbankruptcyif they are unable to makepaymentson theirdebt; they may also be unable to find newlendersin the future.Financial leverage is not always bad, however; it can increase the shareholders'returnon theirinvestmentand often there aretaxadvantages associated withborrowing.also calledleverage.

Financial leverage refers to the use of debt to acquire additional assets. Financial leverage is also known as trading on equity. Below are two examples to illustrate the use of financial leverage, or simplyleverage.

In finance, leverage is a general term for any technique to multiply gains and losses.[1] Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.[2] Important examples are:

A public corporation may leverage its equity by borrowing money. The more it borrows, the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result.[3]

A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income.[4][5]

Hedge funds  often leverage their assets by using derivatives. A fund might get any gains or losses on $20 million worth of crude oil by posting $1 million of cash as margin.

26. Corporate finance

Accounting leverage has the same definition as in investments.[8] There are several ways to define operating leverage, the most common.[1] is:

Financial leverage is usually defined[8] as:

Operating leverage is an attempt to estimate the percentage change in operating income (earnings before interest and taxes or EBIT) for a one percent change in revenue.[8]

Financial leverage tries to estimate the percentage change in net income for a one percent change in operating income.[10][11]

The product of the two is called Total leverage,[12] and estimates the percentage change in net income for a one percent change in revenue.[13]

There are several variants of each of these definitions,[14] and the financial statements are usually adjusted before the values are computed.[8]Moreover, there are industry-specific conventions that differ somewhat from the treatment above.[15]

27 IDBI (4.4)

The Industrial Development Bank of India Limited (IDBI) (BSE: 500116 ) is one ofIndia's leading public sector banks and 4th largest Bank in overall ratings. RBI categorised IDBI as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry.[1] It is currently 10th largest development bank in the world in terms of reach with 1228 ATMs, 725 branches and 486 centers.[2] Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of India (SHCIL), the Credit Analysis & Research Ltd, the Export-Import Bank of India(Exim Bank), the Small Industries Development bank of India(SIDBI), theEntrepreneurship Development Institute of India, and IDBI BANK, which today is owned by the Indian Government, though for a brief period it was a private scheduled bank.

Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. Although Government shareholding in the Bank came down below 100% following IDBI’s public issue in July 1995, the former continues to be the major shareholder (current shareholding: 52.3%).

During the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, covering almost the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernisation and diversification purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms.

IDBI has played a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based industrial development in the country in keeping with its Government-ordained ‘development banking’ charter. In pursuance of this mandate, IDBI’s activities transcended the confines of pure long-term lending to industry and encompassed, among others, balanced industrial growth through development of backward areas, modernisation of specific industries, employment generation, entrepreneurship development along with support services for creating a deep and vibrant domestic capital market, including development of apposite institutional framework.

Narasimam committee [4] recommends that IDBI should give up its direct financing functions and concentrate only in promotional and refinancing role. But this recommendation was rejected by the government. Latter RBI constituted a committee under the chairmanship

of S.H.Khan to examine the concept of development financing in the changed global challenges. This committee is the first to recommend the concept of universal banking. The committee wanted to the development financial institution to diversify its activity. It recommended to harmonise the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking.

In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBI’s foray into the retail finance sector. The fully-owned housing finance subsidiary has since been renamed ‘IDBI Home finance Limited’. In view of the signal changes in the operating environment, following initiation of reforms since the early nineties, Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/ asset base. Towards this end, theIDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament in December 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provisions of the Act have come into force from 2 July 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of Industrial Development Bank of India Ltd. as a company under the Companies Act, 1956 and a deemed Banking Company under the Banking Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those from RBI. IDBI would commence banking business in accordance with the provisions of the new Act in addition to the business being transacted under IDBI Act, 1964 from 1 October 2004, the ‘Appointed Date’ notified by the Central

Government. IDBI has firmed up the infrastructure, technology platform and reorientation of its human capital to achieve a smooth transition.

IDBI Bank, with which the parent IDBI was merged, was a vibrant new generation Bank. The Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The Bank also had the least NPA and the highest productivity per employee in the banking industry.

On 29 July 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending 31 March 2005.

The immediate fall out of the merger of IDBI and idbi bank was the exit of employees of idbi bank. The cultures in the two organizations have taken its toll. The IDBI BANK now is in a growing fold. With its retail banking arm expanding further after the merger of United western Bank.

IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. In particular, IDBI would leverage the strong corporate relationships built up over the years to offer customised and total financial solutions for all corporate business needs, single-window appraisal for term loans and working capital finance, strategic advisory and “hand-holding” support at the implementation phase of projects, among others.

IDBI’s transformation into a commercial bank would provide a gateway to low-cost deposits like Current and Savings Bank Deposits. This would have a positive impact on the Bank’s overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products, leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes. In the emerging scenario, the new IDBI hopes to realize its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporates and individuals, capitalising on its intimate knowledge of the Indian industry and client requirements and large retail base on the liability side.

IDBI upholds the highest standards of corporate governance in its operations. The responsibility for maintaining these high standards of governance lies with its Board of Directors. Two Committees of the Board viz. the Executive Committee and the Audit Committee are adequately empowered to monitor implementation of good corporate governance practices and making necessary disclosures within the framework of legal provisions and banking conventions.

27.Bill financing (ppt)

finance billbill of exchange that, when accepted by a bank, becomes a source of short-term credit for working capital rather than import or export finance. Finance bills, which usually have maturities longer than 60 days, are sometimes issued in tight money periods. They are subject to reserve requirements, unlike ordinary bankers' acceptances, and cannot be rediscounted at the Federal

Reserve window. Also called a bankers' bill or working capital acceptance.

28.Cash credit A short-term cash loan to a company. (14.7)

Cash credit AccountThis account is the primary method in which Banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account.Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank.Cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount. This type of financing is similar to a line of credit.

Sometimes bank funding is just out of the question. Unless your business has excellent credit and a proven track record, a bank loan will be nearly impossible to obtain. Trying to find alternative sources of funding can also seem like a duanting task since there are so many options to choose from. A capital directory can make this process faster and easier since it organizes the criteria of

each individual funding source and allows you to find a perfect funding match for your business. No more manually sorting through thousands of different lenders and types of funding to guess which one might be right for you business.

29. Bank over draft (14.8)

OverdraftThe word overdraft means the act of overdrawing from a Bank account. In other words, the account holder withdraws more money from a Bank Account than has been deposited in it.A bank overdraft is when someone is able to spend more than what is actually in their bank account. Obviously the money doesn't belong to them but belongs to the bank so this money will need to be paid back; normally automatically done when money goes into the persons account. The overdraft will be limited.

A bank overdraft is also a type of loan as the money is technically borrowed. Money owed to the bank in a cheque account where payments exceed receipts.

30. Spontaneous sources of financing 31.Term loan ppt

A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years.

A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one

and ten years, but may last as long as 30 years in some cases. A termloan usually involves an unfixed interest rate that will add additional balance to be repaid.

Term loans can be given on an individual basis but are often used for small business loans. The ability to repay over a long period of time is attractive for new or expanding enterprises, as the assumption is that they will increase their profit over time. Termloans are a good way of quickly increasing capital in order to raise a business’ supply capabilities or range. For instance, some new companies may use a term loan to buy company vehicles or rent more space for their operations.

A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A termloan usually involves an unfixed interest rate that will add additional balance to be repaid.

Term loans can be given on an individual basis but are often used for small business loans. The ability to repay over a long period of time is attractive for new or expanding enterprises, as the assumption is that they will increase their profit over time. Termloans are a good way of quickly increasing capital in order to raise a business’ supply capabilities or range. For instance, some new companies may use a term loan to buy company vehicles or rent more space for their operations. Abank loan to acompany, with afixed maturity and often featuringamortizationofprincipal. If this loan is in theformof aline of credit, thefundsare drawn down shortly after theagreementis signed. Otherwise, theborrowerusuallyusesthe funds from the loan soon after they become available. Bankterm loansare very a common kind oflending.

32. Factoring (17. Definition of Factoring

Definition of factoring is very simple and can be defined as the conversion of credit sales into cash. Here, a financial institution which is usually a bank buys the accounts receivable of a company usually a client and then pays up to 80% of the amount immediately on agreement. The remaining amount is paid to the client when the customer pays the debt. Examples includes factoring against goods purchased, factoring against medical insurance, factoring for construction services etc.

Characteristics of Factoring1. The normal period of factoring is 90150 days and rarely exceeds more than 150 days.2. It is costly.3. Factoring is not possible in case of bad debts.4. Credit rating is not mandatory.5. It is a method of offbalance sheet financing.6. Cost of factoring is always equal to finance cost plus operating cost.

Different Types of Factoring1. Disclosed 2. Undisclosed

1. Disclosed FactoringIn disclosed factoring, client’s customers are aware of the factoring agreement. Disclosed factoring is of two types: 

Recourse factoring: The client collects the money from the customer but in case customer don’t pay the

amount on maturity then the client is responsible to pay the amount to the factor. It is offered at a low rate of interest and is in very common use. Nonrecourse factoring: In nonrecourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first. The advantage of nonrecourse factoring is that continuous factoring will eliminate the need for credit and collection departments in the organization.

2. UndisclosedIn undisclosed factoring, client's customers are not notified of the factoring arrangement. In this case, Client has to pay the amount to the factor irrespective of whether customer has paid or not.

33 Forfeiting

Definition of Forfeiting

The terms forfeiting is originated from a old French word ‘forfait’, which means to surrender ones right on something to someone else. In international trade, forfeiting may be defined as the purchasing of an exporter’s receivables at a discount price by paying cash. By buying these receivables, the forfeiter frees the exporter from credit and the risk of not receiving the payment from the importer.

How forfeiting Works in International Trade

The exporter and importer negotiate according to the proposed export sales contract. Then the exporter approaches the forfeiter to ascertain the terms of forfeiting. After collecting the details about the importer, and other necessary documents, forfeiter estimates risk involved in it and then quotes the discount rate. The exporter then quotes a contract price to the overseas buyer by loading the discount rate and commitment fee on the sales price of the goods to be exported and sign a contract with the forfeiter. Export takes place against documents guaranteed by the importer’s bank and discounts the bill with the forfeiter and presents the same to the importer for payment on due date.

Documentary Requirements

In case of Indian exporters availing forfeiting facility, the forfeiting transaction is to be reflected in the following documents associated with an export transaction in the manner suggested below:

Invoice : Forfeiting discount, commitment fees, etc. needs not be shown separately instead, these could be built into the FOB price, stated on the invoice.

Shipping Bill  and GR form : Details of the forfeiting costs are to be included along with the other details, such FOB price, commission insurance, normally included in the "Analysis of Export Value "on the shipping bill. The claim for duty drawback, if any is to be certified only with reference to the FOB value of the exports stated on the shipping bill.

Forfeiting

The forfeiting typically involves the following cost elements:1. Commitment fee, payable by the exporter to the forfeiter ‘for latter’s’ commitment to execute a specific forfeiting transaction at a firm discount rate with in a specified time.2. Discount fee, interest payable by the exporter for the entire period of credit involved and deducted by the forfaiter from the amount paid to the exporter against the availised promissory notes or bills of exchange. 

Benefits to Exporter

100 per cent financing : Without recourse and not occupying exporter's credit line That is to say once the exporter obtains the financed fund, he will be exempted from the responsibility to repay the debt.

Improved cash flow : Receivables become current cash in flow and its is beneficial to the exporters to improve financial status and liquidation ability so as to heighten further the funds raising capability.

Reduced administration cost : By using forfeiting , the exporter will spare from the management of the receivables. The relative costs, as a result, are reduced greatly.

Advance tax refund: Through forfeiting the exporter can make the verification of export and get tax refund in advance just after financing.

Risk reduction : forfeiting business enables the exporter to transfer various risk resulted from deferred payments, such as interest rate risk,

currency risk, credit risk, and political risk to the forfeiting bank.

Increased trade opportunity : With forfeiting, the export is able to grant credit to his buyers freely, and thus, be more competitive in the market.

Benefits to Banks

Forfeiting provides the banks following benefits:

Banks can offer a novel product range to clients, which enable the client to gain 100% finance, as against 8085% in case of other discounting products.

Bank gain fee based income. Lower credit administration and credit follow up.

Methodofexport trade financing , especially when dealing incapital goods(which have longpayment periods ) or withhigh risk countries . In forfeiting, abank advances cash to anexporteragainst invoices orpromissory notesguaranteed by the importer's bank. Theamountadvanced is always 'without recourse' to the exporter, and is less than theinvoiceornoteamount as it isdiscountedby the bank. Thediscount ratesdepends on thetermsof the invoice/note and the level of the associated risk.

34.Capital gearing The degree to which a company acquires assets or to which it funds its ongoing operations with long- or short-term debt. Capital gearing will differ between companies and industries, and will often change over time.

Capital gearing is also known as "financial leverage".

Capital gearing has to do with how a business engages in the process of financial leverage. Essentially, this approach focuses on how the company continues to remain solvent while acquiring new assets or diverting funds to support its general operations. This process of capital gearing addresses both debt that is created for the short-term, as well as long-term debt obligations. The process of capital gearing involves the application of several common financial calculations. First, the company must undergorisk analysis, to determine what type of impact a specific action will have on the overall stability of the business. The idea is to make sure that even if the proposed action does not yield the anticipated return, it will still not undermine the existing operation, at least not to the point that the operation must close. The current relationship between what the company owes and the amount of revenue it generates is also important, especially when dividends must be paid to investors. Thus, calculating the current debt/equity ratio is also important to the process of capital gearing, as it aids in planning strategies for using assets to best advantage.

One of the ways to understand how capital gearing works is to consider what must occur when a company chooses to purchase a competitor. Here, the buyer must look at the cost of the acquisition, including ancillary factors like legal fees, or the settlement of debts owed by the business that is acquired. This cost must be compared to the amount of return that the buyer hopes to achieve from the transaction, including how long it will take to retire any debt incurred in order to make the purchase. By determining both the short-term and the long-term outcomes of the action, and its impact on the ability of the company to retire any new debt associated with the purchase, the business can

then develop a capital gearing approach that will allow it to move forward without endangering any existing operations.

35.Project evaluation techniques 36. Types of working capital ppt

gross w c Cash  and short-term assets expected to be converted to cash within a year. Businesses use the calculation of gross working capital to measure cash flow. Gross working capital does not account for current liabilities, but is simply the measure of total cash and cash equivalent on hand. Gross working capital tends not to add much to the business' assets, but helps keep it running on a day-to-day basis. See also: Fixed asset, Net working capital.

Net Working CapitalNet Working Capital, is defined as Current Assets minus Current Liabilities. Current assets include stocks, debtors, cash & equivalents and other current assets. Current liabilities include all the short-term borrowings. The formula is the following and the figures are expressed in millions:

= (stocks + debtors + cash & equivalents + current assets,other) - creditors,shortPermanent working capital refers to the minimum amount of all current assets that is required at all times to ensure a minimum level of uninterrupted business operations. Some minimum amount of raw materials, work-in-progress, bank balance, finished goods etc., a business has to carry all the time irrespective of the level of manufacturing or marketing operations. This level of working capital is referred to as core working capital or core current assets. But the

level of core current assets is not a constant sum at all the times. For a growing business the permanent working capital will be rising, for a declining business it will be decreasing and for a stable business it will almost remain the same with few variations. So, permanent working capital is perennially needed one though not fixed in volume. This part of the working capital being a permanent investment needs to be financed through long-term funds.

1. Temporary Working capital 

The temporary or varying working capital varies with the volume of operations. It fluctuates with the scale of operations. This is the additional working capital required from time to time over and above the permanent or fixed working capital. During seasons, more production/sales take place resulting in larger working capital needs. The reverse is true during off-seasons. As seasons vary, temporary working capital requirement moves up and down. Temporary working capital can be financed through short term funds like current liabilities. When the level of temporary working capital moves up, the business might use short-term funds and when the level for temporary working capital recedes, the business may retire its short-term loans.

37.Role of debt capital in project finance

38.Time value of money (PPT)

The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time.

For example, 100 dollars of today's money invested for one year and earning 5 percent interest will be worth 105 dollars after one year. Therefore, 100 dollars paid now or 105 dollars paid exactly one year from now both have the same value to the recipient who assumes 5 percent interest; using time value of money terminology, 100 dollars invested for one year at 5 percent interest has a future value of 105 dollars.[1] This notion dates at least to Martín de Azpilcueta (1491-1586) of the School of Salamanca.

The method also allows the valuation of a likely stream of income in the future, in such a way that the annual incomes are discounted and then added together, thus providing a lump-sum "present value" of the entire income stream.

All of the standard calculations for time value of money derive from the most basic algebraic expression for the present value of a future sum, "discounted" to the present by an amount equal to the time value of money. For example, a sum of FV to be received in one year is discounted (at the rate of interest r) to give a sum of PV at present: PV = FV − r·PV = FV/(1+r).

Some standard calculations based on the time value of money are:

Present value The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations[2].

Present value of an annuity An annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period for an annuity due[3].Present value of a perpetuity is an infinite and constant stream of identical cash flows[4].Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today[5].Future value of an annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.

39.Economic appraisal

Economic appraisal is a type of decision method applied to a project, programme or policy that takes into account a wide range of costs and benefits, denominated in monetary terms or for which a monetary equivalent can be estimated. Economic Appraisal is a key tool for achieving value for money and satisfying requirements for decision accountability. It is a systematic process for examining alternative uses of resources, focusing on assessment of needs, objectives, options, costs, benefits, risks, funding, affordability and other factors relevant to decisions.

The main types of economic appraisal are:

Cost-benefit analysis

Cost-benefit analysis is a term that refers both to:

helping to appraise, or assess, the case for a project, programme or policy proposal;

an approach to making economic decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

Cost-effectiveness analysis

Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and outcomes (effects) of two or more courses of action. Cost-effectiveness analysis is distinct from cost-benefit analysis, which assigns a monetary value to the measure of effect.[1] Cost-effectiveness analysis is often used in the field of health services, where it may be inappropriate to monetize health effect. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure (years of life, premature births averted, sight-years gained) and the numerator is the cost associated with the health gain.[2] The most commonly used outcome measure isquality-adjusted life years (QALY).[1] Cost-utility analysis is similar to cost-effectiveness analysis.

Scoring and weighting

Economic appraisal is a methodology designed to assist in defining problems and finding solutions that offer the best value for money (VFM). This is especially important in relation to public expenditure and is often used as a vehicle for planning and approval of public investment relating to policies, programmes and projects.

The principles of appraisal are applicable to all decisions, even those concerned with small expenditures. However, the scope of appraisal can also be very wide. Good economic appraisal leads

to better decisions and VFM. It facilitates good project management and project evaluation. Appraisal is an essential part of good financial management, and it is vital to decision-making and accountability.

40.Ecological appraisal