9. Project Financial Modelling Flashcards
Front
Back
What is project finance modelling?
Project finance modelling is a tool used to assess the financial viability and performance of large-scale projects based on projected cash flows. (Lesson 9, p.1)
What are the core components of project finance models?
- Revenue Projections, 2. Operating Costs, 3. Capital Expenditures, 4. Financing Structure, 5. Debt Servicing, 6. Tax Implications, 7. Risk Analysis. (Lesson 9, p.1)
Why are cash flow projections important in project finance?
Cash flow projections determine a project’s ability to meet financial obligations and generate returns for investors. (Lesson 9, p.2)
What are key elements in cash flow forecasting?
- Identifying revenue sources, 2. Estimating operating expenses, 3. Projecting capital expenditures, 4. Scheduling debt repayments. (Lesson 9, p.2)
What is the role of equity in project finance models?
Equity acts as a financial buffer, absorbing risks and attracting investors while ensuring project stability. (Lesson 9, p.3)
How is equity structured in project finance?
- Determining equity stake, 2. Structuring dividends and returns, 3. Balancing equity and debt to optimize capital costs. (Lesson 9, p.3)
What are best practices in building a structured financial model?
- Define model objectives, 2. Build logical flow, 3. Use consistent assumptions, 4. Incorporate flexibility. (Lesson 9, p.3)
What are essential best practices in project finance modelling?
- Standardized formats, 2. Transparent calculations, 3. Error checks, 4. Clear documentation of assumptions. (Lesson 9, p.4)
What is the Debt Service Coverage Ratio (DSCR)?
DSCR measures a project’s ability to repay debt, calculated as Net Operating Income divided by Total Debt Service. (Lesson 9, p.4)
Why is a DSCR above 1 important?
A DSCR above 1 indicates that the project generates enough cash flow to cover debt obligations, improving creditworthiness. (Lesson 9, p.4)
What is sensitivity analysis in project finance?
Sensitivity analysis assesses how changes in key variables impact project outcomes, helping identify risk exposure. (Lesson 9, p.4)
What are the benefits of sensitivity analysis?
- Identifies critical risk factors, 2. Assesses financial exposure, 3. Develops risk mitigation strategies. (Lesson 9, p.4)
What is debt structuring in project finance?
Debt structuring optimizes cash flow by aligning debt repayment schedules with project income streams. (Lesson 9, p.5)
What are common debt repayment structures?
- Bullet Payments, 2. Sculpted Payments, 3. Annuity Payments, 4. Reserve Accounts for debt obligations. (Lesson 9, p.5)
Why is reserve account allocation important in project finance?
Reserve accounts provide financial buffers for unexpected expenses, ensuring stable debt repayment. (Lesson 9, p.5)
What are key considerations in renewable energy project finance models?
- Regulatory frameworks, 2. Government incentives, 3. Long-term power purchase agreements (PPAs). (Lesson 9, p.6)
How do case studies help in project finance modelling?
They provide practical insights into managing construction risks, optimizing financial structures, and incorporating ESG factors. (Lesson 9, p.6)
What are advanced Excel techniques for project finance modelling?
- Financial formulas for projections, 2. Scenario modeling, 3. Monte Carlo simulations for risk analysis. (Lesson 9, p.6)
How does project finance modelling bridge theory and practice?
It applies financial principles to real-world scenarios using structured forecasting, financial ratios, and risk mitigation techniques. (Lesson 9, p.6)
What role do financial ratios play in project finance modelling?
Financial ratios like DSCR, IRR, and NPV assess a project’s financial health and investment potential. (Lesson 9, p.6)
How does tax structuring impact project finance models?
Taxes affect cash flow calculations, influencing profitability and investment returns. (Lesson 9, p.5)
Why is financial modelling crucial in project finance?
It creates a financial roadmap, enabling investors and stakeholders to assess project sustainability and long-term success. (Lesson 9, p.6)
What are common risks considered in project finance modelling?
- Construction delays, 2. Interest rate fluctuations, 3. Currency risks, 4. Revenue variability. (Lesson 9, p.6)
How do financial models help attract investors?
They provide detailed projections, risk assessments, and return calculations, improving investor confidence. (Lesson 9, p.6)
