Enlist the different sources of finance.

Restate the term “Crashing”

"Crashing" in project management refers to the technique of shortening the project schedule by accelerating the
completion of activities. This is typically done by adding additional resources or working extra hours to critical path
tasks to complete them faster, thereby reducing the overall project duration. Crashing often incurs higher costs due to
the additional resources required.

What do u mean by Project Financing? DONE

What do u mean by working capital requirements.

Working capital requirements refer to the funds a business needs to cover its day-to-day operational expenses, such as paying
suppliers, employees, and managing inventory. It represents the difference between current assets and current liabilities.

Discuss about uncertainties in project implementation

1. Variation: Minor fluctuations in project

2. Foreseen Uncertainty: Known unknowns .
3. Unforeseen Uncertainty: Unknown unknowns.
4. Chaos

Discuss about project cost estimation process along with all its required components

Discuss about the sources of funds and capital budgeting under the project management and entrepreneurship

Source of Funds(SOF) : Source of funds refers to the origin of the particular funds or any other monetary instrument which are
the subject of transaction between a financial institution and the customer

On the Basis of Period:

1. Long-term: Funds that are available for a

period exceeding five years. These are
typically used for major capital
investments like purchasing machinery,
land, or buildings. Examples include
equity shares, debentures, and long-term
loans.
2. Medium-term: Funds that are available for
a period ranging from one to five years.
These are generally used for working
capital needs or minor capital
expenditures. Examples include medium-
term loans and lease financing.
3. Short-term: Funds that are available for a period of up to one year. These are used for meeting short-term
liquidity requirements, such as purchasing inventory or covering operating expenses. Examples include
trade credit, bank overdrafts, and short-term loans.
On the Basis of Ownership:

1. Owner’s Funds: Funds that are provided by the owners of the business. These represent the equity capital of
the company and include the owners' initial capital investment and retained earnings. Examples are equity
shares and retained profits.
2. Borrowed Funds: Funds that are borrowed from external sources and must be repaid over time. These
include loans from banks, financial institutions, debentures, and other forms of debt financing.

On the Basis of Source of Generation:

1. Internal Sources: Funds generated from within the organization. These include retained earnings,
depreciation funds, and the sale of assets. These funds do not increase the company's liabilities.
2. External Sources: Funds obtained from outside the organization. These include loans from banks and
financial institutions, issuing debentures, and external equity financing. These sources typically create a
liability for the company as they need to be repaid.

Definition Capital budgeting is the process by which organizations evaluate and select long-term
investments and projects. It involves the planning and managing of a company's long-term investments in
assets and projects, such as new machinery, research and development, or new products. The primary goal is to
maximize the firm's value by investing in projects that yield the highest returns over their useful lives

Explain the term project financing elaborate different sources of Finance in detail.

• Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-
recourse or limited recourse financial structure.
• The debt and equity used to finance the project are paid back from the cash flow generated by the project.
• Project Financing is a long-term, zero or limited recourse financing solution that is available to a borrower against the
rights, assets, and interests related to the concerned project.

Outline the different types of cost incurred on any project. Explain the variation of these costs with the duration of the project.

Types of Costs:

1. Fixed Costs:
o Definition: Costs that remain constant regardless of the project's duration or level of activity.
o Examples: Rent, salaries of permanent staff, insurance premiums.
o Variation with Duration: Fixed costs do not vary with project duration; they remain the same whether
the project is short or long.
2. Variable Costs:
o Definition: Costs that vary directly with the level of activity or project duration.
o Examples: Raw materials, hourly wages, utility costs.
o Variation with Duration: Variable costs increase proportionally with the project's duration; longer
projects incur higher variable costs.
3. Direct Costs:
o Definition: Costs that can be directly attributed to the project.
o Examples: Labor, materials, equipment.
o Variation with Duration: Direct costs tend to increase with the duration of the project as more resources
are consumed over time.
4. Indirect Costs:
o Definition: Costs that are not directly attributable to a specific project but are necessary for the overall
operation.
o Examples: Administrative expenses, utilities, general office supplies.
o Variation with Duration: Indirect costs may increase slightly with longer project durations due to
prolonged use of general resources.
5. Sunk Costs:
o Definition: Costs that have already been incurred and cannot be recovered.
o Examples: Initial research and development expenses, initial training costs.
 o
Variation with Duration: Sunk costs do not vary with the project duration; they are past expenses and
remain constant.
6. Opportunity Costs:
o Definition: The potential benefits lost when choosing one alternative over another.
o Examples: Potential income from alternative projects not undertaken.
o Variation with Duration: Opportunity costs may increase with longer projects if they delay the start of
other profitable projects.

Variation of Costs with Project Duration:

• Fixed Costs: These remain constant regardless of how long the project lasts. A project extending beyond its
expected duration won't affect these costs.
• Variable Costs: These increase linearly with project duration. The longer the project, the higher the variable
costs due to ongoing consumption of resources.
• Direct Costs: Like variable costs, these tend to rise as the project duration increases, reflecting the
continuous need for labor, materials, and equipment.
• Indirect Costs: These may increase slightly over time as the project's indirect use of resources, like utilities
and administrative support, continues.
• Sunk Costs: These are unaffected by the duration of the project as they are already incurred expenses.
• Opportunity Costs: These can potentially increase with longer project durations, reflecting the lost benefits
from postponed or foregone alternative opportunities.

Discuss Project risk management. Illustrate the different risks involved in project evaluation

Project risk management is the act of identifying, evaluating, planning for and then ultimately responding to threats to the
business or a project. Process of Risk Management involves following Steps:

1. Identify the Risk

• Use identification techniques (e.g., brainstorming, SWOT).

• Document in a risk register.

2. Analyze the Risk

• Assess likelihood and impact.(by Impact Matrix)

• Classify risks by type.

3. Evaluate the Risk

• Rank risks by severity.

• Determine risk tolerance.

4. Treat the Risk

• Develop mitigation plans.

• Implement risk responses.

5. Monitor and Review the Risk

• Track and update risks.

• Evaluate strategy effectiveness.

Discuss about the risk and uncertainty in project evaluation

Types of Risks:

1. Operational Risk: Risk arising from internal processes, systems, and people.
2. Security Risk: Threats to the project's data and physical assets.
3. Legal Risks: Potential legal actions or non-compliance with laws and regulations.
4. Strategic Risks: Risks that affect the project's alignment with strategic goals.
5. Performance Risks: Uncertainty about meeting project performance standards or objectives.
6. Market Risks: Risks due to changes in market conditions affecting project outcomes.

Types of Uncertainty:

5. Variation: Minor fluctuations in project activities that can be anticipated.

6. Foreseen Uncertainty: Known unknowns that can be planned for with contingency plans.
7. Unforeseen Uncertainty: Unknown unknowns that arise unexpectedly during the project.
8. Chaos: Situations where project conditions change so drastically that normal project controls are ineffective.

Illustrate the preparation of detailed project report.

Discuss about the concept of preparation of a real time project feasibility report.

Explain the different stages of project report preparation methods for evaluation.

Discuss about the concept of projected balance sheet and projected income statement.

INCOME STATEMENT:

1. An income statement or profit or loss account is one of the three (along with balance sheet and statement of cash flows)
major financial statements that report a company’s financial performance over a specific accounting..
2. Net income = (total revenue + gains) - (total expenses + losses)
3. An income statement provides valuable insight into a company’s operations , the efficiency of its management
,underperforming sectors and its performance related to industry peers.

Income Statement Components:

• Revenue: Revenue is the money an entity receives from the sale of goods or services. Other terms frequently used for
revenue are sales, net sales, or sale revenue.
• Cost of Goods Sold: Cost of goods sold are the direct costs of producing the goods being offered by the entity. This
would include the materials, labor, and other resources required for production.
• Gross Profit: Gross profit is the difference between the revenue received for the product less the cost of goods sold.
• Operating Expenses: Operating expenses are the amount an entity expends to maintain and operate the general
business. Operating expenses include research and development, marketing, general and administrative, amortization
of intangible assets etc.
• Operating Income: Operating income is equal to revenues minus cost of goods sold and operating expenses.
• Other Income/Expenses: To obtain net income, further adjustments must be made to account for interest income
and expense, income tax expenses, and other extraordinary and miscellaneous items.
• Profits: Revenues minus all expenses equal net income (profits or losses).

o Pick a Reporting Period

o Generate a Trial Balance Report
o Calculate Your Revenue
o Determine Cost of Goods Sold
o Calculate the Gross Margin
o Include Operating Expenses
o Calculate Your Income
o Include Income Taxes
o Calculate Net Income
o Finalize the Income Statement
UNIT 4

WORKING CAPITAL
1. Definition of Working Capital Working capital is the portion of capital needed to handle the daily financial requirements
of a business. This includes payments to creditors, employee salaries, and purchases of raw materials.
2. It is often characterized by its recurring nature and can be easily converted into cash, making it a crucial element of
short-term financial management.
3. Working capital is not fixed and is typically calculated as the difference between current assets and current liabilities.
4. Importance of Working Capital Management Working capital management is a key aspect of financial management,
focusing on the short-term financing of a business. Effective management ensures a balance between profitability and
liquidity, facilitating the efficient operation of the business.
5. Components and Concepts of Working Capital Working capital can be classified into two main concepts: Gross Working
Capital and Net Working Capital.
1. Gross Working Capital
• Definition: Gross working capital refers to the total capital invested in a company's current assets.
• Components: It includes assets like cash, accounts receivable, inventory, and other short-term assets.
• Importance: It provides a general view of the capital that a business has available for its day-to-day operations.
2. Net Working Capital
• Definition: Net working capital considers both current assets and current liabilities, representing the difference
between the two.
• Calculation: Net Working Capital = Current Assets - Current Liabilities
• Positive vs. Negative:
• Positive Net Working Capital: Occurs when current assets exceed current liabilities, indicating a strong
liquidity position.
• Negative Net Working Capital: Occurs when current liabilities exceed current assets, suggesting potential
liquidity issues and the need for better working capital management.

Types of working capital:

Gross working capital
Net working capital
Negative working capital = Negative Net Working Capital
Permanent working capital = minimum amount of capital required even in dullest of season
Temporary working capital

Definition Capital budgeting is the process by which organizations evaluate and select long-term investments and projects. It
involves the planning and managing of a company's long-term investments in assets and projects, such as new machinery,
research and development, or new products. The primary goal is to maximize the firm's value by investing in projects that
yield the highest returns over their useful lives.
Phases of Capital Budgeting
1. Planning
 • Identifying potential investment opportunities or projects that align with the company’s strategic goals.
• Gathering initial ideas and proposals from various sources within the organization.
2. Analysis
• Conducting a detailed assessment of each proposed project’s feasibility and potential returns.
• Utilizing financial appraisal techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), Payback
Period, and Profitability Index (PI) to evaluate the viability of projects.
3. Selection
• Comparing and ranking projects based on their evaluations and alignment with the company’s strategic
objectives.
• Selecting projects that meet the required rate of return and fit within the firm's budget constraints.
4. Financing
• Determining the most appropriate sources of funding for the selected projects.
• Considering various financing options such as equity, debt, or internal funds to secure the necessary capital.
5. Implementation
• Allocating resources and executing the selected projects.
• Ensuring that the projects are managed effectively to meet timelines, budgets, and quality standards.
6. Review
• Conducting a post-completion audit to assess the performance of completed projects.
• Comparing actual outcomes against expected results to identify lessons learned and improve future capital
budgeting decisions.
Projected Financial Statements
Definition Projected financial statements are forward-looking financial documents that estimate a company’s future financial
performance. They typically include projections for income statements, balance sheets, and cash flow statements over a
specific period.
Key Point
• Purpose: These statements are used for planning, budgeting, and decision-making, helping businesses anticipate future
financial conditions and make informed strategic choices.
Types of Projected Financial Statements
1. Long-Term Projections
• Strategic Planning: Typically covering a period of five to ten years, long-term projections are used for strategic
planning and assessing the long-term viability of major projects and investments.
• Capital Budgeting: These projections are crucial for long-term investment decisions, including capital
expenditures, expansions, and mergers or acquisitions.
2. Short-Term Projections
• Operational Planning: Usually spanning one year or less, short-term projections are used for detailed
operational planning, including monthly or quarterly budgeting.
• Cash Flow Management: Short-term projections help in managing day-to-day cash flows, ensuring that the
company has sufficient liquidity to meet its immediate obligations.
Importance of Projected Financial Statements
1. Informed Decision-Making: They provide a basis for making informed business decisions by forecasting future revenues,
expenses, and profitability.
2. Risk Management: By anticipating potential financial outcomes, businesses can identify and mitigate risks before they
materialize.
3. Securing Financing: Lenders and investors often require projected financial statements to assess the future financial
health of the business and the feasibility of providing funding.
Steps to prepare projected Balance Sheet

INCOME STATEMENT

netIncome = (TOTAL REVENUE +GAINS ) - (TOTAL EXPENSES + LOSSES)