Money doesn't create man but it is the man who created money.

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• Money doesn't create man but it is the man who
  created money.
• -Warren Buffet

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WELCOME To ALL OF YOU Project Finance

• RAHUL JAIN
• (Striving for excellence)
• BCOM (H), MBA, FCS

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(No Transcript)
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Aim of the Module

• To develop a comprehensive understanding of
  evaluation techniques to gauge the viability of a
  project, and variables affecting the viability.

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Learning outcomes

• Identify the various cost components involved in
  setting up an apparel factory
• Evaluate the viability of the project based on
  the most appropriate Capital Budgeting technique
• Estimate the working capital requirements for
  running the apparel plant
• Estimate the break-even volume and value of sales
  for a given investment level

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Our Strategy for achieving these Objectives?

• Concepts, Cases and Class Discussion
• Punctuality, Participation and Preparation
• (Its compulsory to bring your own calculators,
  Pen, Stationary, Registers, Prescribed Book,
  Printouts of the Intranet documents- Otherwise
  disciplinary action will be taken)
• Judgment challenge
• Learning to communicate ideas
• Learning from each other
• Learning through discovery

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What is Good Participation?

• Quality, not quantity.
• Analyzing and discussing course material.
• Questioning the analysis of others.
• Seeking clarification.
• Summarizing / synthesizing.
• Adherence to guidelines for professional conduct.

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Project - Meaning

• Project is an activity which is unique and
  temporary and helps in implementing the strategy
  of the organization.

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Project

• Projects are used today as a way of achieving a
  variety of outcomes- in local or international
  locations for new constructions, new product
  development product improvement, process design,
  process improvement, utility installation, theory
  and technology development, and many more.
  Bringing a project to a successful conclusion
  requires the integration of numerous management
  functions like controlling, directing, team
  building, communication and others.
• Examples
• Developing a new product or service
• Constructing a building
• Implementing a new business procedure

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Project Management

• Project management is the art and science of
  directing and leading a team of people to
  accomplish a discrete goal.

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Spirit of Innovation Converting Idea into
Success

• Being Different
• Having Fun
• Vision creates Opportunities, Execution
  Creates Magic

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Being Different

• Can We change the status quo ?
• Can We take the Initiative ?
• Can We leverage on our strengths ?

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Some Examples
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Having Fun

• Can We be creative ?
• Can We do the same thing in better manner ?
• Can We enjoy the process ?

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Project Finance

• A Project usually defined as a major productive
  capital investment.
• One has to do following
• Raising Money
• Allocating Money
• Preparing the budgets and financial statements

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Project FinanceProcess

1. Strategic/commercial evaluation
2. Systematic identification and exploration of
   risks
3. Forecasting of Cash flows
4. Design of risk bearing/sharing package
5. Appropriate funding package
6. Impact of financing package on net cash flows and
   sensitivity analysis

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Financial Goals of Project

• Profit maximization (profit after tax)
• Shareholders Wealth Maximization

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Profit Maximization

• Maximizing the Rupee Income of Firm
• Resources are efficiently utilized
• Appropriate measure of firm performance
• Serves interest of society also

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Objections to Profit Maximization

• It is Vague
• It Ignores the Timing of Returns
• It Ignores Risk
• Assumes Perfect Competition
• In new business environment profit maximization
  is regarded as
• Unrealistic
• Difficult
• Inappropriate
• Immoral.

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Shareholders Wealth Maximization

• Maximizes the net present value of a course of
  action to shareholders.
• Accounts for the timing and risk of the expected
  benefits.
• Benefits are measured in terms of cash flows.
• Fundamental objectivemaximize the market value
  of the firms shares.

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Key terms

• Tangible costs or benefits are those costs or
  benefits that an organization can easily measure
  in dollars.
• Intangible costs or benefits are costs or
  benefits that are difficult to measure in
  monetary terms.
• Direct costs are costs that can be directly
  related to producing the products and services of
  the project.
• Indirect costs are costs that are not directly
  related to the products or services of the
  project, but are indirectly related to performing
  the project.
• Sunk cost is money that has been spent in the
  past when deciding what projects to invest in or
  continue, you should not include sunk costs.

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Key terms

• Opportunity cost
• What you give up for certain in exchange for a
  chance at something better.
• Total risk
• The overall variability of returns on an project.
• Interest
• The cost of borrowed money

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Key terms

• Time value of money
• The fundamental finance principal that one dollar
  received today is worth more than one dollar
  received tomorrow.
• Equity / Stock/Share
• Evidence of an ownership interest in a
  corporation

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Costs

• Fixed (Indirect/Overheads) are not influenced
  by the amount produced but can change in the
  long run e.g., insurance costs, administration,
  rent, some types of labour costs (salaries), some
  types of energy costs, equipment and machinery,
  buildings, advertising and promotion costs
• Variable (Direct) vary directly with the amount
  produced, e.g., raw material costs, some direct
  labour costs, some direct energy costs
• Semi-fixed where costs not directly
  attributable to either of the above, for example,
  some types of energy and labour costs

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Comparison of Variable and Fixed Costs
A variable cost is a cost that changes in
direct proportion to changes in the cost driver.
A fixed cost is not immediately affected by
changes in the cost driver.
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Expenditure

• Revenue Expenditure
• Capital Expenditure

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Apparel Products Value
ChainBy Lyn Fernando
-Lack of Direct contacts/ Access to Retailer.
-Long lead time - Cost of Agents
Need to develop strong networks lobby groups.
Free Trade Agreements, concessionary tariffs
Buyer (Retailer)
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Selling Distribution (Agents)

• High Cost Structure ( Labour, Utility)
  Wastage use of CAD/CAM
• Labor Laws, Invest in Human Resources
• Lack of Skilled Management
• Low productivity,
• Proximity to Suppliers
• High energy cost

Proximity to market, regular sailings -sea Air.
Electronic Data Interchange for documentation
Outbound logistics
Manufacturing (cut, sew finishing)FOB 10-25 of
Retail
Lack of Advanced Manufacturing Technology
Dependency on imported raw material, long lead
times,delays at customs, documentation, EDI
Raw materials /Accessories 40-70 of FOB
Lack of Specialty fabrics Accessories
Sourcing
Product Development
Non availability of advanced product development
facilities
Lack of design capabilities
Design
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• Financials/Costing Of Project

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Annual Cash Flow

• Year1
• Sales 7,035,600
• COGS 5,800,000
• Other expenses 612,960
• Depreciation. 120,000
• Total. Op. costs 6,532,960
• EBIT 502,640
• Non Op. Expense 80,000
• EBT 422,640
• Taxes (40) 169,056
• Net income 253,584
• Add Depreciation 120000
• Cash Flow After Taxes 373584

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Project Costing Processes

• Resource planning determining what resources and
  quantities of them should be used
• Cost estimating developing an estimate of the
  costs and resources needed to complete a project
• Cost budgeting allocating the overall cost
  estimate to individual work items to establish a
  baseline for measuring performance
• Cost control controlling changes to the project
  budget

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Exercise-I

• Classify the cost items as direct or indirect ,
  fixed or variable or semi fixed.
• a. Salary of the production department manager
  who oversees manufacturing. b. Salaries of
  company founders. c. Cardboard trays used to
  package sets of garments
• d. Salary of the Web graphics designer who
  prepares the online illustrations and layout.
  e. Annual maintenance service agreement for the
  conveyer belt. f. Wages paid to labor
• g. Utilities such as water, electricity, waste
  for the warehouse. h. Cost of ingredients

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Assignment I

• Main Readings
• Chapter 1, Financial Management, I.M. Pandey
  (IXth Edition), ( Page 7 onwards), PPT ,
  Internet, Hand Out and Library
• Q. How can you apply the basics of Project
  costing in the fashion industry? (Answer in 1
  page)
• Q. Chapter 1- Page 15 Q- 6
• Q. Make a 1 page summary of the key learnings
  from the class
• Two of you will give presentation

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Learning Tools

• Website www.finishingschool.pbworks.com,
• Financial Management, I.M. Pandey (IXth Edition)
• Contact rahulkjain16_at_gmail.com, 9811228852
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Note Some important points

• Answers in A4 page Hand written
• Individual submission
• Those who will not submit the assignment within
  5 minutes of start of the next class will be
  marked absent
• See the Assessment Plan on the internet for other
  details
• Readings (PowerPoint, Word Document uploaded on
  intranet, Internet research, Library and
  Recommended Books)