VCE Summer Internship Program 2021

Smart Task Submission Format

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Intern’s Details
Name P. Bala Sai Saroj Ram

Email-ID 2201194@ipeindia.org

Smart Task No. 3

Project Topic Financial Modeling and Analysis

Smart Task (Solution)

Task Q1: How a new venture is assessed to qualify as project finance. What are the factors that
needed to be considered?

Task Q1 Solution:
The following elements must be considered while evaluating a new business venture:

1. The legitimacy of the project:

If loan experts or other financial backers decide to invest in your project, it is because they
think their investment will be profitable. They'll make sure your forecasts are reasonable and
based on reality.

2. The principals past financial performance:

Lenders may consider the past as primarily predicting the future. They will undoubtedly run a
credit check on the business owners to see if they have successfully paid off previous debts.
The credibility of a principal may be harmed by bankruptcy or unpaid debt.

3. Security:
Business assets are frequently used to get obligation support, which should be enough to let
moneylenders cover their bet.

4. The organization's financial standing and ability to pay:

You only need to demonstrate to loan authorities that your business is capable of meeting its
financial responsibilities. The organization's financial architecture should therefore show a
reasonable overall allocation of resources and credits.
5. Risks to the environment of business:
Banks ensure that people do not regard your industry as being highly dependent on
gambling. A bank can be too cautious due to the upcoming removal of a tax obstacle, a
technique that introduces contamination, or the manner your organisation is set up within a

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 VCE Summer Internship Program 2021
Smart Task Submission Format

delicate economic sector.

500 Words (Max.)

Task Q2: Explain in detail the revenue model (process of generating revenue) for Solar PV Project,
Residential Building, Manufacturing Unit and other PPP projects.

Task Q2 Solution:
A revenue model is how a company generates revenue. The following provides an explanation of
the revenue model for a solar PV project, a home, a factory, and other PPP projects.

Solar PV Project:
A Solar PV (Photovoltaic) project involves generating electricity from solar panels and selling it to
the grid or end consumers. The revenue model for a Solar PV Project typically includes the
following steps:

Investment: The businessman will invest in installing solar panels on a suitable location like
rooftops or open land. The initial investment includes the cost of solar panels, inverters, mounting
structures, and other equipment.

Power Generation: Solar panels generate electricity from sunlight. The energy produced depends
on factors like panel capacity, location, and weather conditions.

Selling Electricity: The electricity generated can be sold in two ways:

- Selling to the Grid (Grid-Tied): In this model, the generated electricity is sold to the local power
grid at a predetermined feed-in tariff or market rate.
- Power Purchase Agreements (PPAs): The project owner can enter long-term contracts with
commercial or industrial consumers to sell the electricity directly to them at a negotiated price.

Revenue Generation: The revenue is generated from selling the electricity over the contract period
(usually 20-25 years for solar panels). The revenue will be the total electricity units generated
multiplied by the selling price per unit.

Operational and Maintenance Costs: There will be operational and maintenance costs involved,
which include cleaning, monitoring, and periodic maintenance of solar panels and equipment.

Residential Building:
In the context of a residential building, the revenue model primarily revolves around rental income:

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Smart Task Submission Format

Property Acquisition: The businessman invests in buying a luxury flat using the debt-equity ratio of
70:30, where he invests 30% of the property's value as equity and takes a loan for the remaining
70%.

Rental Income: The businessman rents out the flat to a tenant. In this case, the expected monthly
rent is Rs. 2.50 Lakhs.

Operating Expenses: The businessman will need to cover expenses such as property maintenance,
property taxes, insurance, and any necessary repairs.

Debt Repayment: The businessman will use the rental income to pay off the debt taken to purchase
the flat. This will reduce the outstanding loan amount over time.

Profit: Once the debt is fully repaid, the rental income becomes a source of profit for the
businessman.

Manufacturing Unit:
The revenue model for a manufacturing unit involves the following steps:

Investment: The businessman invests in setting up the manufacturing unit, which includes acquiring
land, building infrastructure, purchasing machinery, and hiring labour.

Production: The manufacturing unit starts production of the desired goods or products. The revenue
will be generated from the sale of these manufactured products.

Cost of Goods Sold (COGS): The revenue earned from selling the products needs to cover the cost
of raw materials, labour, utilities, and other operational expenses related to production.

Selling and Distribution: The manufactured products are sold to distributors, wholesalers, retailers,
or end consumers, depending on the business model.

Profit: The revenue generated from selling the products should be higher than the cost of
production (COGS) and other operating expenses to generate a profit.

PPP Projects:
PPP stands for Public-Private Partnership projects, which involve collaboration between the
government and private sector to deliver public infrastructure or services. Revenue models for such
projects can vary widely based on the project's nature, such as infrastructure development (roads,
bridges, etc, healthcare, education, water supply, etc.

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Smart Task Submission Format

Project Scope: The revenue model depends on the scope of the PPP project, such as the
construction and operation of a toll road, building and managing a hospital, or providing educational
services.

Project Financing: The private party (in this case, the businessman) invests in the project along with
the government or other partners.

Revenue Source: The revenue can come from user fees, government payments, or a combination
of both. For example, in a toll road project, revenue is generated through toll collections from users.
In a healthcare PPP, revenue may come from patient fees as well as government payments for
services provided to subsidized patients.

Operational Costs: The private party is responsible for operating and maintaining the project during
the concession period.

Profit-Sharing: Depending on the PPP agreement, profits may be shared between the private party
and the government based on predefined terms.

500 Words (Max.)

Task Q3: What should be the additional points that needed to be included in a financial model, if
the financing bank is from abroad and the debt is in US$ but revenue is in INR.

Task Q3 Solution:
Internationally expanding businesses typically rely on capital to do so. The actions to consider
when funding is listed below.

Monetary unit: The funds may be held in the local currency of the company's location or in a
prominent global currency, such as the US dollar. By choosing the appropriate currency to handle
FX inflows and outflows, the goal is to avoid FX risk. Market arbitrage is also essential to consider
in FX. For instance, you may get money in currency X and convert it to currency Y using a cross-
currency swap. If the final interest rate is lower than the direct currency Y funding, you can engage
in financial arbitrage.

Taxes: The legal and accounting personnel at your company should examine each international
finance transaction for taxes, such as stamp duties, withholding taxes, municipal taxes, or any other
tax credits.

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Smart Task Submission Format

Diversification of funding: The financial manager should choose the most effective structure. He or
she might choose several financial institutions, some of whom they might consider as long-term
strategic partners. A smaller transaction's participants also increase deal structure stability,
institutional commitment, and secrecy.

Negotiation: Treasurers should be mindful that their ability to bargain or be responsive may be
diminishing when negotiating money with a local financial institution. Consider a private contract
rather than a standard one to obtain better terms.

Without the use of an intermediary, the ultimate creditor and the borrowing company are connected
directly. The borrower also issues securities and sells them down to investors and underwriters. It is
best to use long-term funding for this more complex process. Information disclosure is required, for
example, in the case of a public offering.

500 Words (Max.)

500 Words (Max.)

500 Words (Max.)

Please add / delete blocks if needed.

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