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 RISHAV RAJ GUPTA

Email-ID [email protected]

Smart Task No. 1

Project Topic Financial modeling and analysis

Smart Task (Solution)

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 VCE Summer Internship Program 2021
Smart Task Submission Format

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 :
The term "finance" refers to issues including the development, management, and study of money and investments. It entails employing future income flows to finance 
current initiatives through the use of credit and debt, securities, and investment. 
Finance is strongly tied to the time value of money, interest rates, and other related topics because of its temporal component.
Finance and accounting operate on different levels of the asset management spectrum. Accounting provides a snapshot of an organization’s financial situation using
past and present transactional data, while finance is inherently forward-looking; all value comes from the future.

Accounting

In accounting, insight into a firm’s financial situation is gained through the “accounting equation,” which is: Assets = Liabilities + Owners' Equity.

This formula looks at what a company owns (its assets), what it owes (its liabilities), and the residual that belongs to shareholders (owner’s equity). And it must
balance out—the assets on the left should equal the claims against those assets on the other side. It’s a fundamental means for determining whether a company’s
financial records accurately reflect the transactions carried out over a period of time.

Finance

When assessing performance through the lens of finance, cash is king. Unlike accounting’s reliance on transactional data, finance looks at how effectively an
organization generates and uses cash through the use of several measurements.

Free cash flows is arguably the most important one, which examines how much money a company has to distribute to investors, or reinvest, after all expenses have
been covered. It’s a strong indicator of profitability, and can be used to make present-day investment decisions based on an expectation of future payoff.

>Ability to communicate

Strong written and verbal communication abilities are crucial for those who want to work in accounting and finance, but it's also crucial to be able to translate
financial jargon into lay words.
Instead of hiring individuals who merely repeat what they have taught, many businesses prefer applicants who can make sophisticated industry jargon understandable
to clients with no background knowledge.

Financing Reporting
Financial reporting expertise is unquestionably necessary, especially in expanding fields like superforecasting.
However, it is difficult to locate applicants in this industry that have good abilities in financial reporting.
It makes sense for financial candidates seeking for a competitive edge to make sure they can show a strong aptitude for financial reporting during their next job
interview.\
Analytical Ability
Employers need candidates with the capacity for lateral thinking, scenario analysis, and appropriate conclusion-making.
Candidates that are interested in a lucrative career in finance must show their analytical skills through real-world examples and KPI-driven outcomes.
Problem Solving Skills
Today, it's not enough to know systems and processes inside and out; you also need to be able to handle complicated issues as they come up.
Your career will advance rapidly if you have a track record of solving challenges, whether it's resolving the financial ramifications of a convoluted corporate structure
or developing a customised solution for a client's tax dilemma.

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VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

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Task Q2 :
What is project finance, How is project finance different from corporate finance,
Define 20 terminologies related to project finance?

Task Q2 Solution : Project finance is the use of a non-recourse or limited recourse financial structure to support (finance) long-term infrastructure, industrial
projects, and public services. The project's cash flow is utilised to repay the debt and equity that were used to finance it.
Project financing is a type of loan where the assets, rights, and interests of the project are kept as secondary collateral and the project's cash flow is used as the
primary source of repayment. Project financing appeals to the private sector in particular since it allows businesses to finance large projects off-balance sheet (OBS).
In corporate finance, the lenders have the right to seize all of the assets of the parent firm. In essence, if a firm declares bankruptcy, the lenders have the right to
confiscate the borrower company's assets and sell them at auction to recoup their losses. The project under project finance, however, is segregated from the
sponsoring business. In essence, a special purpose vehicle is established for the project-related transactions, and the lenders' claims are only capped at the special
purpose company's cash flows.
In corporate finance, the total assets, enterprise value, and risks of the company are used to calculate the debt level and borrowing costs. On the other hand, in
project finance, a company's debt capacity is established based on the ability of the particular project to generate sufficient cash flow to comfortably cover the
debt obligations.

1. 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:
2. Balace 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.
3. 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:

4. Operating Cash Flow: The net cash generated from normal business operations
5. Investing Cash Flow: The net cash generated from investing activities, such as securities investments and the purchase or sale of assets
6. Financing Cash Flow: The net cash generated financing a business, including debt payments, shareholders’ equity, and dividend payments
7. 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.
8. 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.

9. 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.
10. 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.
11. 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:
12. 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.
13. 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. 
14. 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.
15. 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.
16. NPV: Is used to calculate the current total value of a future stream of payments. If the NPV of a project or investment is positive, it means that the
discounted present value of all future cash flows related to that project or investment will be positive, and therefore attractive.
17. IRR:The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of a project zero. In other words, it is the
expected compound annual rate of return that will be earned on a project or investment
18. ARR: The yearly rate of return is calculated by taking the amount of money gained or lost at the end of the year and dividing it by the initial
investment at the beginning of the year. This method is also referred to as the annual rate of return or the nominal annual rate
19. Terminal value: Terminal value (TV) is the value of an asset, business, or project beyond the forecasted period when future cash flows can be
estimated. Terminal value assumes a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large
percentage of the total assessed value.
20. ProfitMargin: 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:

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VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

Task Q3 : What Is Non-Recourse Debt, What Is Mezzanine Financing and example ?

Task Q3Solution :
: Non-recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral
but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is
one instance where the borrower does not have personal liability for 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.
Example:
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.)

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VCE Summer Internship Program 2021
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Task Q4
Explain in detail with reasons of what the sectors are or which type of projects are suitable for project
finance?

Task Q4 Solution :

Infrastructure project are suitable for project finance.

Financing infrastructure projects through the project finance route offers various benefits such as the opportunity for risk sharing, extending the
debt capacity, the release of free cash flows, and maintaining a competitive advantage in a competitive market. Project finance is a useful tool for
companies that wish to avoid the issuance of a corporate repayment guarantee, thus preferring to finance the project in an off-balance sheet
manner. The project finance route permits the sponsor to extend their debt capacity by enabling the sponsor to finance the project on someone's
credit, which could be the purchaser of the project’s outputs. Sponsors can raise funding for the project based simply on the contractual
commitments.
Project finance also permits the sponsors to share the project risks with other stakeholders. The basic structure of project finance demands that the
sponsors spread the risks through a network of security arrangements, contractual agreements, and other supplemental credit support to other
financially capable parties willing to assume the risks. This helps in reducing the risk exposure of the project company.
The project finance route empowers the providers of funds to decide how to manage the free cash flow that is left over after paying the operational
and maintenance expenses and other statutory payments. In traditional corporate forms of organization, corporate management decides on how to
use the free cash flow — whether to invest in new projects or to pay dividends to the shareholders. Similarly, as the capital is returned to the
funding agencies, particularly investors, they can decide for themselves how to reinvest it. As the project company has a finite life and its business
is confined to the project only, there are no conflicts of interest between investors and the management of the company, as often happens in the
case of traditional corporate forms of organization.
Financing projects through the project finance route may enable the sponsors to maintain the confidentiality of valuable information about the
project and maintain a competitive advantage. This is a benefit of raising equity finance for the project (however, this advantage is quite limited
when seeking capital market financing (project bonds). Where equity funds are to be raised (or sold at a later time so as to recycle capital) through
market routes (for example, Initial Public Offerings [IPOs]), the project-related information needs to be shared with the capital market, which may
include competitors of the project company/sponsors. In the project finance route, the sponsors can share the information with a small group of
investors and negotiate the price without revealing proprietary information to the general public. And, since the investors will have a financial
stake in the project, it is also in their interest to maintain confidentiality.
In spite of these advantages, project finance is quite complex and costly to assemble. The cost of capital arranged through this route is high in
comparison with capital arranged through conventional routes. The complexity of project finance deals is due to the need to structure a set of
contracts that must be negotiated by all of the parties to the project. This also leads to higher transaction costs on account of the legal expenses
involved in designing the project structure, dealing with project-related tax and legal issues, and the preparation of necessary project ownership,
loan documentation, and other contracts.

500 Words (Max.)

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