Description

SESSION JUL-AUG 2024
PROGRAM MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER 3
COURSE CODE & NAME DPRM303 AND PROJECT FINANCE AND
BUDGETING

Assignment Set – 1

1. Describe working capital and its types. Also explain how the Earned Value Technique
aids in project cost control.
Ans 1.
Working Capital and Earned Value Technique in Project Cost Control
Working capital is a financial metric that represents the operational liquidity available to a
business. It is calculated as the difference between a company’s current assets and current
liabilities. Effective management of working capital ensures that a company can meet its shortterm
obligations and continue its operations without disruption. Working capital is crucial for
day-to-day business activities, such as paying suppliers, employees, and other operational
expenses. Its efficient management is vital for maintaining a healthy financial balance within
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2. Why is a project company formed, and what role does an SPV play? Describe the
importance of key project documents in project finance.
Ans 2.
A project company is a legal entity established specifically to execute a single project. It is
often formed to isolate the risks and responsibilities associated with the project from the parent
organization. By creating a separate legal structure, the project company ensures that the
project’s liabilities do not affect the parent company’s financial standing or other ongoing
operations. This approach is especially common in large-scale infrastructure, real estate, and
energy projects, where risks are significant, and financing needs are substantial.
3. XYZ company expects the following net cash inflows for the next five years: Rs 15,000,
Rs.20,000, Rs.25,000, Rs.35,000, and Rs.40,000 respectively from the Project. The initial
investment of project is Rs.60,000
Calculate:
a. Payback period
b. Post payback profitability
c. Net present value when the discount rate is 10%. 3+3+4
Ans 3.
XYZ Company Cash Flow Analysis
Given Data:
 Initial Investment: ₹60,000
 Cash Inflows: ₹15,000, ₹20,000, ₹25,000, ₹35,000, ₹40,000 for years 1 to 5.
 Discount Rate: 10%
1. Payback Period
The Payback Period is the time it takes for the initial investment to be recovered through
cumulative cash inflows.
Formula:
Payback Period = Years before full recovery
+
Unrecovered amount at the beginning of the year
Cash inflow in that year
Steps:
1. Calculate cumulative cash inflows year by year.
2. Identify the year in which cumulative inflows equal or exceed the initial investment.
Year Cash Inflow (₹) Cumulative Cash Flow (₹)
1 ₹15,000 ₹(60,000 – 15,000) = -₹45,000
2 ₹20,000 ₹(45,000 – 20,000) = -₹25,000
3 ₹25,000 ₹(25,000 – 25,000) = ₹0
Assignment Set – 2
4. Define project finance and its features. Discuss the role of project sponsors and their
impact on project success.
Ans 4.
Project Finance and Its Features
Project finance is a method of funding large-scale infrastructure, industrial, or public-service
projects, wherein the financing is secured primarily through the project’s future cash flows.
Unlike traditional corporate finance, which relies on the balance sheet and creditworthiness of
the parent company, project finance creates a standalone legal entity, often a Special Purpose
Vehicle (SPV), to isolate project risks and manage financing. This structure is common in
5. Explain the components of project cash flows, including cash inflows and outflows.
How does an optimal capital structure affect project outcome?
Ans 5.
Components of Project Cash Flows
Project cash flows are the lifeblood of any project, determining its financial viability and longterm
sustainability. These cash flows are broadly categorized into inflows and outflows. Cash
inflows represent the revenues and funding sources generated during the project’s lifecycle.
The primary inflows typically include revenues earned from the sale of goods or services
produced by the project. For instance, in a toll road project, the cash inflows are derived from
toll collections, while in a power generation project, they come from the sale of electricity.
6. What is the BOOT model, and how is it structured? Discuss the challenges of BOOT
projects and provide examples.
Ans 6.
The BOOT Model and Its Challenges
The Build-Own-Operate-Transfer (BOOT) model is a public-private partnership (PPP)
framework widely used in infrastructure development. Under this model, a private entity is
responsible for financing, designing, constructing, owning, and operating a project for a
predetermined concession period. During this time, the private entity generates revenues,
typically through user charges, such as tolls, tariffs, or service fees, depending on the nature of
the project. At the end of the concession period, the ownership and operation of the project are