VCE Summer Internship Program 2021

Smart Task Submission Format

[ Download This Format in .DOCX format and then Edit it and SUBMIT ]
Intern’s Details
Name Pratibha Singh

Email-ID pratibhasingh0308@gmail.com

Smart Task No. 01

Project Topic Financial Modeling and Analysis (Infra)

Smart Task (Solution)

Task Q1 : What is Finance? How is Finance different from Accounting? What are important
basic points that should be learned to pursue a career in finance?

Task Q1 Solution : Finance is a broad term that describes activities associated with banking, leverage or debt, credit,
capital markets, money, and investments. Essentially, finance represents money management and the process of
acquiring needed funds.

The key difference between Finance and Accounting is that finance is the management of the money and the investment
of different individuals, organizations, and other entities, whereas, Accounting is the process of recording, maintaining as
well as reporting the financial affairs of the company which shows the clear financial position of the company.

Finance has a lot of different career opportunities to offer. Depending on what industry, company and role you want to
pursue, the requirements will vary. For example, if you were to consider becoming a sales agent for securities and
commodities, it would be preferred to have a bachelor's degree with exposure to courses in finance, accounting or
economics. You'd also likely have to undergo regular trainings to keep your knowledge up to date. Depending on the
exact nature of the occupation, you might also be required to have specific certifications.
However some core skills that will be helpful across the broad spectrum of career options are:
 Analytical and problem solving skills
 Mathematics skills
 Attention to details

500 Words (Max.)

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Smart Task Submission Format

Task Q2 :
What is project finance? How is project finance different from corporate finance? Why can’t
we put project finance under corporate finance? Define 20 terminologies related to project
finance

Task Q2 Solution : Project Finance is financing of a long-term infrastructure or industrial project using a non-recourse
financial structure, which relies only on the project’s cash flows for debt repayment, with the project’s assets held as a
collateral.
The difference between project finance and corporate finance are:-
Corporate Finance is a more suitable financing model for MSMEs, business with projects with the similar risk profile,
entities having an organic expansion and where the management looks for operational and financial flexibility, whereas
the Project Finance model is more suitable in case of high-risk projects, inorganic expansions, JV/PPP projects,
projects/segments with the different risk profile.
We can’t put project finance under corporate finance because unlike Corporate Finance, Project Finance does not or
minimally impact the corporate balance sheet because the right to claim on the assets in the event of failure to repay,
extends to only the assets of the project ( and the additional security offered if any) and not of the parent company.
20 terminologies related to project are as follows:-
1. Amortization: Amortization is a method of spreading an intangible asset's cost over the course of its useful life Intantangible assets arenophysical assets
that are essential to a company, such as a trademark, patent, copyright, or franchise agreement.
2. Assets: Assets are items you own that can provide future benefit to your business, such as cash, inventory, real estate,
office equipment, or accounts receivable, which are payments due to a company by its customers. There are different
types of assets, including: Current Asset & Current Asset.
3. Asset Allocation: Asset allocation refers to how you choose to spread your money across different investment types,
also known as asset classes. These include:Bond, Stocks & Cash and cash Equivalent.
4. Balance Sheet: A balance sheet is an important financial statement that communicates an organization’s worth, or
“book value.” The balance sheet includes a tally of the organization’s assets, liabilities, and shareholders’ equity for a
given reporting period.
5. Capital Gain: A capital gain is an increase in the value of an asset or investment above the price you initially paid for it.
If you sell the asset for less than the original purchase price, that would be considered a capital loss.
6. Capital Market: This is a market where buyers and sellers engage in the trade of financial assets, including stocks and
bonds.
7. Cash Flow: Cash flow refers to the net balance of cash moving in and out of a business at a specific point in time.
Cash flow is commonly broken into three categories, including:
Operating Cash Flow
Investing Cash Flow
Financing Cash Flow
8. Cash Flow Statement: A cash flow statement is a financial statement prepared to provide a detailed analysis of what
happened to a company’s cash during a given period of time. This document shows how the business generated and
spent its cash by including an overview of cash flows from operating, investing, and financing activities during the
reporting period.

9. Compound Interest: This refers to “interest on interest.” Rather, when you’re investing or saving, compound interest is
earned on the amount you deposited, plus any interest you’ve accumulated over time. While it can grow your savings, it
can also increase your debt; compound interest is charged on the initial amount you were loaned, as well as the
expenses added to your outstanding balance over time.

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10. Depreciation: Depreciation represents the decrease in an asset’s value. It’s a term commonly used in accounting and
shows how much of an asset’s value a business has used over a period of time.

11. EBITDA: An acronym standing for Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA is a
commonly used measure of a company’s ability to generate cash flow. To get EBITDA, you would add net profit, interest,
taxes, depreciation, and amortization together.

12. Equity: Equity, often called shareholders’ equity or owners’ equity on a balance sheet, represents the amount of
money that belongs to the owners of a business after all assets and liabilities have been accounted for. Using the
accounting equation, shareholder’s equity can be found by subtracting total liabilities from total assets.

13. Income Statement: An income statement is a financial statement that summarizes a business’s income and expenses
during a given period of time. An income statement is also sometimes referred to as a profit and loss (P&L) statement.

14. Liabilities: The opposite of assets, liabilities are what you owe other parties, such as bank debt, wages, and money
due to suppliers, also known as accounts payable. There are different types of liabilities, including:
Current Liabilities
Long-Term Liabilities

15. Liquidity: Liquidity describes how quickly your assets can be converted into cash. Because of that, cash is the most
liquid asset. The least liquid assets are items like real estate or land, because they can take weeks or months to sell.
16. Net Worth: You can calculate net worth by subtracting what you own, your assets, with what you owe, your liabilities.
The remaining number can help you determine the overall state of your financial health.

17. Profit Margin: Profit margin is a measure of profitability that’s calculated by dividing the net income by revenue or the
net profit by sales. Companies often analyze two types of profit margins:
Gross Profit Margin
Net Profit Margin
18. Return on Investment (ROI): Return on Investment is a simple calculation used to determine the expected return of a
project or activity in comparison to the cost of the investment, typically shown as a percentage. This measure is often
used to evaluate whether a project will be worthwhile for a business to pursue. ROI is calculated using the following
equation: ROI = [(Income - Cost) / Cost] * 100

19. Valuation: Valuation is the process of determining the current worth of an asset, company, or liability. There are a
variety of ways you can value a business, but regularly repeating the process is helpful, because you’re then ready if ever
faced with an opportunity to merge or sell your company, or are trying to seek funding from outside investors.

20. Working Capital: Also known as net working capital, this is the difference between a company’s current assets and
current liabilities. Working capital—the money available for daily operations—can help determine an organization’s
operational efficiency and short-term financial health.

500 Words (Max.)

Task Q3: What is non-recourse debt / loan? What is mezzanine finance, explain with an example.

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Task Q3 Solution : A non-recourse loan limits the assets of a borrower that a lender can pursue to recover the loan
amount in the event of default. If the borrower defaults on the loan, the lender can only go after the asset(s) that were
designated as collateral for the loan. The lender cannot go after other assets, such as the borrower’s personal accounts,
in order to recover the total amount of the loan.

Mezzanine financing is a hybrid of debt and equity financing that gives the lender the right to convert the debt to an equity
interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid. In
terms of risk, it exists between senior debt and equity.
For example:- Mr. Richard Ice Cream Parlour
Mezzanine funds can be used to buy a company or expand one’s own business without going for an IPO.

Let’s say that Mr. Richard has an ice-cream parlor. He wants to expand his business. But he doesn’t want to go for
conventional equity financing. Rather he decides to go for mezzanine financing.

He goes to mezzanine financiers and asks for mezzanine loans. The lenders mention that they need warrants or options
for mezzanine loans. Since the loans are unsecured, Mr. Richard has to agree to the terms set by the mezzanine lenders.

So Mr. Richard takes $100,000 by showing that he has a cash flow of $60,000 every year. He takes the loans and
unfortunately defaults at the time of payment since his ice-cream parlor couldn’t generate enough cash flow. The lenders
take a portion of his ice-cream parlor and sell off to get back their money.

500 Words (Max.)

Task Q4 : Explain in detail with reasons of what the sectors are or which type of projects is
suitable for project finance?

Task Q4 Solution :Types of projects suitable for project finance are as follows:-

Project financing in India is used for both greenfield and brownfield projects in sectors such as:
 Public infrastructure (roads, airports, metro rail and ports, among others).
 Energy (power generation (solar, thermal, wind, hydro), power transmission and so on).
 Construction.
 Manufacturing (cement).
 Education.

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 Healthcare.
 Telecommunication.

Public or private companies are preferred for financing projects. Limited liability partnerships can also be incorporated for
undertaking projects. One parent or holding company incorporating project specific subsidiaries is usual in the
infrastructure sector. The company being a separate legal entity, and the separation of project risks and liabilities of those
of the holding company, are key considerations to opt for a holding company-project specific subsidiary structure.
Additionally, having a holding company-project specific subsidiary structure allows wider options relating to the nature of
financing that may be obtained by the companies.

500 Words (Max.)

500 Words (Max.)

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