PPT 12

Question 1

2 Vital Issues in Project Finance

Answer 1

Capital Required (Fixed Assets/Capitalization)
Composition of Capital (Capital Structure)

Question 2

Capital Structure Objectives

Answer 2

Minimizing the cost of capital
Maximizing returns to owners/shareholders

Question 3

Project Funds Needed For

Answer 3

Fixed Capital Financing (e.g., Plant, Machinery, Furniture)
Working Capital Financing (day-to-day operations)

Question 4

Fixed Capital

Answer 4

Funds required to purchase fixed assets like:

Plant and Machinery
Furniture & Fixtures
Building

Question 5

Factors Determining Fixed Capital Requirement

Answer 5

Nature of Business
Size of Business
Leasing Arrangements
Ancillary Units
Technology
Subcontracting
Economic Trends
International Business Conditions

Question 6

Sources of Finance for Fixed Assets

Answer 6

Borrowing from Public
Financial Institutions
Lease Financing
Retained Earnings
Equity Shares
Preference Shares
Debentures
Term Loans
Deferred Credit
Development Loans/Capital Subsidies
Unsecured Loans and Deposits

Question 7

Term Loans

Answer 7

Duration: 10-25 years
Repayment in instalments (possible before due date)
Fixed interest rate
Risk shared between financial institution and promoter
Nominee Director on firm’s Board

Question 8

Working Capital

Answer 8

Capital needed for daily operations, including:

Cash & Bank Balance
Accounts Receivable
Inventory
Advances Paid
Net Working Capital = Current Assets – Current Liabilities

Question 9

Components of Inventory

Answer 9

Stock of Raw Materials
Stock of Finished Goods
Stock of In-Process Goods
Stores and Spares

Question 10

Debt-to-Equity Ratio

Answer 10

Represents the financial structure of an organization.
Calculated by dividing total liabilities by shareholder equity (from the Balance Sheet).