Project Finance
Project financing is a non-traditional financing technique that is now being used even by many high-profile corporate projects. It is increasingly emerging as the preferred alternative to finance fixed assets and other large-scale projects.
As a study, Project Finance includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds.
As per the International Project Finance Association, ‘Project Finance’ is defined as “The financing of long-term infrastructure, industrial projects and public services, based upon a non-recourse (Project Finance that is secured by some sort of collateral, usually property, plant, equipment etc. is known as non- recourse financing) or limited recourse financial structure (where project debt and equity used to finance the project are paid back from the cash flow generated by the project)”
Project finance is finance for a particular project, like the hospital in our case, which is repaid from the cash-flow of that project. It is different from the traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. Usually, no recourse shall be provided by the non-project assets of the borrower. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project.
Figure 1: Features of Project Finance
Term Loan
A Term Loan is a loan with a maturity date but no amortization. The borrower pays the interest monthly, quarterly, or annually, a...
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...of credit and bank guarantees come under non fund financing. They remain dormant in the balance sheet till the transactions are within their limit.
Letter of credit – A buyer issues a letter of credit in favor of the seller from his issuing bank. After the seller dispatches his goods, he goes with the required documents to the Confirming Bank, who gives the guarantee of payment. The seller then can choose any bank for negotiation of its letter of credit.
Bank Guarantee – Bank issues guarantee that in case of an occurrence or non-occurrence of a specified event, the bank shall make good of any loss suffered. The guarantee is issued upon receipt of a request from applicant for some purpose/transaction in favor of a Beneficiary. The issuing bank will pay the guarantee amount to the 'beneficiary' of the guarantee upon receipt of the claim from the beneficiary.
The Accounting Principles II portfolio project helped me become familiar with accounting practices used to complete routine financial tasks. This course helped me learn how to complete routine business transactions, discover and explain financial issues in companies and create and manage ledgers for employers. The Accounting Principles II portfolio project taught me how to manage companies’ journals, income statements, cash flow statements and closing statements in ledgers. The Bryant Stratton Online college program outcomes helped me learn about merchandising laws, rules and approaches used in corporations. These outcomes helped me learn and distinguish practices used to create, track and manage product inventories when I am completing tasks
The following report analyses Johnson and Johnson from a third party perspective. The report will commence with an overview of operations followed by an evaluation of the company; its financial performance, capital structure, and dividend policy. Additionally we aim to provide advice to potential investors based on relevant financing theories to whether or not it is a good company to invest in.
was based on estimation, cost control, contracts and procurement. This class was very important for me as I got to know about gantt charts, logic diagram, price of estimate, Project Risk, Payback Period and risk analysis. Gantt chart is a graphic display of the output on a time scale. It also shows the amount of work done or production completed in certain periods of time in relation to the amount planned for those periods. I also came to know that Senior management must create a corporate culture that supports project management and demonstrates faith in the methodology. If this is done successfully, then project risk can be prevented. I also understand the importance of payback period. payback period is the exact length of time needed for
The main approach in traditional financial method to value a project is the discounted cash flow (DCF) model. This model is...
Project Management: A Systems Approach to Planning, Scheduling and Controlling. Hoboken, NJ: Wiley & Co., Inc. Kim, B. &. (2011).
Some items used for collateral are as follows, property, land, and equipment. In the repayment terms section it discusses the Then we have repayment terms, when the loan is approved, both the creditor and the company or the persons must come into an agreements on the loan repayment term. If the company or the persons decide to go long-term, their interest rate will be higher than a short term repayment plan. Either way the company or persons chooses between long-term or short-term the bank will make money off the loan, but going
Gray, C., Larson, E. (2008). Project Management: The managerial Process. New York, NY: The McGraw-Hill Companies Inc.
Capital task assets might be utilized by government, nearby government and certain not-for-profit associations when they are attempted sure sorts of capital ventures. The reserve is utilized to represent the assets utilized in capital ventures including the development of new structures, increases to structures and certain buys of gear. The capital tasks store will be utilized amid the life of a capital undertaking and will be shut toward the finish of the venture. There are standards and confinements with regards to the utilization of assets raised, contingent upon the wellspring of those assets. According to Weikart, Chen, and Sermier (2013) Funding can come from conventional taxable borrowing through a bank or from the capital markets, or
Financing cycle. Financing activities involve such things as investments in and withdrawals from companies by owners and borrowing and repaying debts. Sage 50 allows users to record receipts separate from customer receipts which can be credited to an equity account to represent investment or to a liability account to represent the borrowing of money.
A project is a temporary endeavour undertaken to create a unique product or service. They are goal oriented, have a definite start and finish time, must be done within cost, schedule and quality parameters. Projects involve the coordinated undertaking of interrelated activities (Project Management: Achieving Competitive Advantage). According to Tom Peters, “Projects, rather than repetitive tasks, are now the basis for most value-added in business”. Based on this, it is clear that projects are of utmost importance to businesses in both the service and the manufacturing industries.
Debt financing is also borrowing against future earnings. This means that instead of using all future profits to grow the business or to pay owners, you have to allocate a portion to debt payments. Overuse of debt can severely limit future cash flow and stifle growth. Debt is a bet on your future ability to pay back the loan. What if your company hits hard times or the economy, once again, experiences a meltdown?
Project management involves all activities that encompass scheduling, planning, and controlling projects. A successful project manager ensure that an organization’s resources are being used both efficiently and effectively. Most projects need to be uniquely developed require a sense of customization and the ability to adapt to any posed challenges. The scope of effective project management includes defining what the project is and what is being expected to be accomplished. Projects are imposed to fulfill a certain need and project managers must have the ability to create the proper definition. Goals and the means used to attain those goals have to be clearly stated. Project Managers must also have the ability to plan
Inventory financing: Dinner Bell can use this as they have expensive equipment with them and medium length sales cycle. In this the lender will use their equipment as collateral and the loan is paid as sales are made to the customers. Dinner Bell can use many things as collateral such as; tennis courts nine Golf-hole course,
When planning a new project, how the project will be managed is one of the most important factors. The importance of a managers will determine the success of the project. The success of the project will be determined by how well it is managed. Project management is referred to as the discipline that entails the processes of carefully planning, organizing, controlling, and motivating the organization resources so as to foster and facilitate the achievement of specific established and desired goals and meet the specific criteria of success required in the organization (Larson, 2014). Over the course of this paper I will be discussing and analyzing the importance of project management.
Long-term finance is an amount of borrowed money will be repaid over a specific time period which is longer than one year or into the future. (Nickels, McHugh, McHugh, N.D.)