PPT 13

Question 1

What are the two vital issues in project finance?

Answer 1

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

Question 2

What are the objectives of capital structure?

Answer 2

Minimizing the Cost of Capital
Maximizing the returns to owners or shareholders

Question 3

What are the two types of project funds needed?

Answer 3

Fixed Capital Financing
Working Capital Financing

Question 4

What is fixed capital?

Answer 4

Funds needed for purchasing fixed assets like plant, machinery, furniture, fixtures, and buildings.

Question 5

What factors determine the need for fixed capital?

Answer 5

Nature of Business
Size of Business
Leasing Arrangement
Presence of Ancillary Units
Technology
Provision of Subcontract
Trends in the Economy
International Business Condition

Question 6

What are some sources of finance for fixed assets?

Answer 6

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

Question 7

What are term loans?

Answer 7

Loans normally for 10 to 25 years, with repayment possible in instalments even before the due date, at a fixed rate of interest.

Question 8

What is working capital?

Answer 8

Capital required for running day-to-day operations of the business.

Question 9

What are the components of working capital?

Answer 9

Cash and bank balance
Accounts Receivable
Inventory
Advances Paid

Question 10

What is the formula for net working capital?

Answer 10

Net Working Capital = Current Assets – Current Liabilities

Question 11

What are the components of inventory?

Answer 11

Stock of raw materials
Stock of Finished Goods
Stock of In-Process Goods
Stores and Spares

Question 12

What are current assets and current liabilities?
A:

Answer 12

Current Assets: Easily convertible into liquid cash within one accounting year (e.g., cash, bank balance, bills receivable, inventory).
Current Liabilities: Items owed by the firm (e.g., bills payable, short-term loans).

Question 13

What is the debt-to-equity ratio?

Answer 13

It is calculated by dividing a company’s total liabilities by its shareholder equity, and it is available on the company’s balance sheet.