ITM323
Project Finance
Assignment - I
Assignment Code: 2015ITM323A1 Last Date of Submission: 15th April 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the NPV, Pay Back Period, IRR and discounted pay back period with example.
2. Outline the characteristics of venture capital investment that distinguish them from investing in the equity of an established firm listed on a stock exchange.
3. Describe briefly the things that project financers in Power project consider?
4. How do the four methods of raising finance – Public issue, rights issue, private placements and preferential allotment compare?
Section-B
Case Study
The normal and crash times and direct costs for the activities of a project are shown below:
Activity Time Cost
Normal Crash Normal Crash
(1-2) 5 2 6,000 9,000
(2-4) 6 3 7,000 10,000
(1-3) 4 2 1,000 2,000
(3-4) 7 4 4,000 8,000
(4-7) 9 5 6,000 9,200
(3-5) 12 3 16,000 19,600
(4-6) 10 6 15,000 18,000
(6-7) 7 4 4,000 4,900
(7-9) 6 4 3,000 4,200
(5-9) 12 7 4,000 8,500
Case Questions:
5. a. Draw the network diagram.
b. Determine all normal and critical path.
c. Find the minimum cost project schedule if the indirect cost are Rs. 1,000 per
week.
ITM323
Project Finance
Assignment - II
Assignment Code: 2015ITM323A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Define cost of capital, with method of working, with an example, of:
(a) Equity capital
(b) Retained earnings
(c) Debenture
2. (a) Describe briefly the main features of venture capital.
(b) Explain the V.C. investment process and management.
3. Explain firm risk and market risk.
4. What are the similarities and differences between the UNIDO approach and Little- Mirrlees approach?
Section-B
Case Study
Virgin Air: A case on Project Appraisal
Following is the article which appeared on 9th August, 2009 in Forbes (some assumptions and additions have been made in the above case.)
For Virgin Air
Greg Levine, August 09 2009, 3:48 PM ET NEW YORK -
Über-entrepreneur Richard Branson is said to be near the launch of Low-cost airlines in India. ….. The move follows the success of low-cost airline Virgin Blue in Australia. …..
However, Branson had seen the following items in Business Standard some time back.
Air-India may shelve low-cost airline plan
Amrita Dhar in New Delhi | November 10, 2008 10:26 IST
Air-India may shelve its plan to begin a low-cost airline. The Air-India board of directors has set up a special committee headed by N Vaghul, ICICI Bank chairman, on Saturday to take a final view on the matter. Vaghul is a member of the airline's board.
Preliminary feasibility studies conducted by the airline have revealed that it would not be commercially viable to begin low cost operations
Richard Branson has therefore, asked for your advise, whether he should finally go-ahead with Low-Cost Airlines in India. Branson has provided you the following information, which was generated through Market and Technical Appraisal, of the proposed low-cost airline project in India. You are required to appraise the project from the financial point of view.
1. Project Starts, 1st April 2010 (It will take 1 year to actually start the commercial operation)
2. Virgin Air openings in India starts, 1st April 2011
3. Project Ends – 5 Years after operation i.e., 31st March 2016
4. Project Cost (in Million $)
Cost of the Aircraft (Boeing 737) 140
Baggage X-Ray Machines 15
Transfer Vehicles 11
Contingencies 10
Interest prior to operation 10
Margin money for working capital 14
Total 200
5. The assets have the following scrap value on 31st March 2016. Aircraft (Boeing 737) – $90 million, Baggage X-Ray Machines - $ 5 million, Transfer Vehicles - $0.55 million
6. Means of Financing
a. Equity share capital by Branson $ 100 million
b. 10% Loan from Bank of Australia $ 100 million
Loan is secured against Aircrafts and repayable in 5 years @$20 million each year starting 31st March 2012 and with interest payable annually along with the instalment amount. Ignore interest for the period 1st April 2005-31st March 2011.
7. Contingencies and Interest prior to operation has to apportioned among Aircraft (Boeing 737), Baggage X-Ray Machines in the ratio of 1:1 each
8. Based on the Market Appraisal, Virgin will focus only on the following sectors. The following Revenue are expected to be generated in the first year of operation from the above sectors
No. of Aircrafts No. of Flights Revenue to
dedicated to Sector Per day generated each
Flight (one side)
Delhi-Mumbai Sector 2 2 flights to and fro $ 0.1 million
Mumbai-Bangalore Sector 1 1 flights to and fro $ 0.05 million
Hyderabad-Calcutta Sector 1 2 flights to and fro $ 0.15 million
Calcutta-Delhi Sector 1 1 flights to and fro $ 0.10 million
Assume that service shall be provided for 300 days per annum
Revenue will grow at a rate of 10% on the 1 year of commercial operation.
9. Expenses Estimated:
Aircraft Turbine Fuel 40% of Revenue
Airport Authority of India Fees $ 5 million per annum
(Airport Fees, Airport Traffic Controllers Fees)
Salary, Wages and other personnel expenses $10 million per annum
Aircraft Maintenance Inventory consumption $ 5 million per annum
Ground Support Administration Expenses $ 4 million per annum
In-Flight Catering-Food and Beverages $ 6 million per annum
Commission to Direct Selling Agent 5% or Revenue
The expenses except Aircraft Turbine Fuel and Commission to Direct Selling Agent will remain same in the years following the 1st year.
10. Depreciation shall be provided on the following basis
Under Company Law Under Income Tax Law
Straight Line Method Written-down Method
Aircraft (Boeing 737) 8% 10%
Baggage X-Ray Machines 16% 28%
Transfer Vehicles 19% 45%
11. Income Tax applicable to Virgin Air shall be 30%. Assume there is no deduction in respect of Investment Allowances.
12. Assume there is no interest on working capital as it will be invested from the owners’ equity.
13. The cost of equity is estimated to be 20%.
No additional working capital is expected to bring in the future years.
Avoid decimals in your calculations.
Case Question:
5. Prepare the Cash-flow statement, Profit and Loss Account, Balance Sheet along with the case analysis.
Following is present value factors for various years at various rates:
Years\Rates 11.50% 13.50% 15.00% 16.50%
1 0.897 0.881 0.870 0.858
2 0.804 0.776 0.756 0.737
3 0.721 0.684 0.658 0.632
4 0.647 0.603 0.572 0.543
5 0.580 0.531 0.497 0.466
Project Finance
Assignment - I
Assignment Code: 2015ITM323A1 Last Date of Submission: 15th April 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the NPV, Pay Back Period, IRR and discounted pay back period with example.
2. Outline the characteristics of venture capital investment that distinguish them from investing in the equity of an established firm listed on a stock exchange.
3. Describe briefly the things that project financers in Power project consider?
4. How do the four methods of raising finance – Public issue, rights issue, private placements and preferential allotment compare?
Section-B
Case Study
The normal and crash times and direct costs for the activities of a project are shown below:
Activity Time Cost
Normal Crash Normal Crash
(1-2) 5 2 6,000 9,000
(2-4) 6 3 7,000 10,000
(1-3) 4 2 1,000 2,000
(3-4) 7 4 4,000 8,000
(4-7) 9 5 6,000 9,200
(3-5) 12 3 16,000 19,600
(4-6) 10 6 15,000 18,000
(6-7) 7 4 4,000 4,900
(7-9) 6 4 3,000 4,200
(5-9) 12 7 4,000 8,500
Case Questions:
5. a. Draw the network diagram.
b. Determine all normal and critical path.
c. Find the minimum cost project schedule if the indirect cost are Rs. 1,000 per
week.
ITM323
Project Finance
Assignment - II
Assignment Code: 2015ITM323A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Define cost of capital, with method of working, with an example, of:
(a) Equity capital
(b) Retained earnings
(c) Debenture
2. (a) Describe briefly the main features of venture capital.
(b) Explain the V.C. investment process and management.
3. Explain firm risk and market risk.
4. What are the similarities and differences between the UNIDO approach and Little- Mirrlees approach?
Section-B
Case Study
Virgin Air: A case on Project Appraisal
Following is the article which appeared on 9th August, 2009 in Forbes (some assumptions and additions have been made in the above case.)
For Virgin Air
Greg Levine, August 09 2009, 3:48 PM ET NEW YORK -
Über-entrepreneur Richard Branson is said to be near the launch of Low-cost airlines in India. ….. The move follows the success of low-cost airline Virgin Blue in Australia. …..
However, Branson had seen the following items in Business Standard some time back.
Air-India may shelve low-cost airline plan
Amrita Dhar in New Delhi | November 10, 2008 10:26 IST
Air-India may shelve its plan to begin a low-cost airline. The Air-India board of directors has set up a special committee headed by N Vaghul, ICICI Bank chairman, on Saturday to take a final view on the matter. Vaghul is a member of the airline's board.
Preliminary feasibility studies conducted by the airline have revealed that it would not be commercially viable to begin low cost operations
Richard Branson has therefore, asked for your advise, whether he should finally go-ahead with Low-Cost Airlines in India. Branson has provided you the following information, which was generated through Market and Technical Appraisal, of the proposed low-cost airline project in India. You are required to appraise the project from the financial point of view.
1. Project Starts, 1st April 2010 (It will take 1 year to actually start the commercial operation)
2. Virgin Air openings in India starts, 1st April 2011
3. Project Ends – 5 Years after operation i.e., 31st March 2016
4. Project Cost (in Million $)
Cost of the Aircraft (Boeing 737) 140
Baggage X-Ray Machines 15
Transfer Vehicles 11
Contingencies 10
Interest prior to operation 10
Margin money for working capital 14
Total 200
5. The assets have the following scrap value on 31st March 2016. Aircraft (Boeing 737) – $90 million, Baggage X-Ray Machines - $ 5 million, Transfer Vehicles - $0.55 million
6. Means of Financing
a. Equity share capital by Branson $ 100 million
b. 10% Loan from Bank of Australia $ 100 million
Loan is secured against Aircrafts and repayable in 5 years @$20 million each year starting 31st March 2012 and with interest payable annually along with the instalment amount. Ignore interest for the period 1st April 2005-31st March 2011.
7. Contingencies and Interest prior to operation has to apportioned among Aircraft (Boeing 737), Baggage X-Ray Machines in the ratio of 1:1 each
8. Based on the Market Appraisal, Virgin will focus only on the following sectors. The following Revenue are expected to be generated in the first year of operation from the above sectors
No. of Aircrafts No. of Flights Revenue to
dedicated to Sector Per day generated each
Flight (one side)
Delhi-Mumbai Sector 2 2 flights to and fro $ 0.1 million
Mumbai-Bangalore Sector 1 1 flights to and fro $ 0.05 million
Hyderabad-Calcutta Sector 1 2 flights to and fro $ 0.15 million
Calcutta-Delhi Sector 1 1 flights to and fro $ 0.10 million
Assume that service shall be provided for 300 days per annum
Revenue will grow at a rate of 10% on the 1 year of commercial operation.
9. Expenses Estimated:
Aircraft Turbine Fuel 40% of Revenue
Airport Authority of India Fees $ 5 million per annum
(Airport Fees, Airport Traffic Controllers Fees)
Salary, Wages and other personnel expenses $10 million per annum
Aircraft Maintenance Inventory consumption $ 5 million per annum
Ground Support Administration Expenses $ 4 million per annum
In-Flight Catering-Food and Beverages $ 6 million per annum
Commission to Direct Selling Agent 5% or Revenue
The expenses except Aircraft Turbine Fuel and Commission to Direct Selling Agent will remain same in the years following the 1st year.
10. Depreciation shall be provided on the following basis
Under Company Law Under Income Tax Law
Straight Line Method Written-down Method
Aircraft (Boeing 737) 8% 10%
Baggage X-Ray Machines 16% 28%
Transfer Vehicles 19% 45%
11. Income Tax applicable to Virgin Air shall be 30%. Assume there is no deduction in respect of Investment Allowances.
12. Assume there is no interest on working capital as it will be invested from the owners’ equity.
13. The cost of equity is estimated to be 20%.
No additional working capital is expected to bring in the future years.
Avoid decimals in your calculations.
Case Question:
5. Prepare the Cash-flow statement, Profit and Loss Account, Balance Sheet along with the case analysis.
Following is present value factors for various years at various rates:
Years\Rates 11.50% 13.50% 15.00% 16.50%
1 0.897 0.881 0.870 0.858
2 0.804 0.776 0.756 0.737
3 0.721 0.684 0.658 0.632
4 0.647 0.603 0.572 0.543
5 0.580 0.531 0.497 0.466
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