Course No.: PPM 124. Number of credits: 2 Number of lectures-tutorial-practicals: 28( ) Introduction

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1 Course No.: PPM 124 Course title: Project Appraisal & Finance Number of credits: 2 Number of lectures-tutorial-practicals: 28( ) Course coordinator: Prof Samir Bajpai Introduction Capital budgeting for expansion, replacement and green field projects is one of the on going activities of the corporate sector. This process starts with project planning and culminates with the review of the projects it s has undertaken. There are various issues that govern the investment criteria and a feasibility report is developed for project appraisal towards an informed decision on the proposed capital investment. Course objectives The objective of this course is to familarise the student with both, capital budgeting aspect and the contents of a bankable feasibility report. The course content will be supplemented by case studies of capital investments undertaken by corporate. The students will prepare a preliminary feasibility report covering all the elements of the course. Evaluation procedure: Case study & Presentation 30% 2 minor tests (20% each) 40% Final exam 30% Details of course content and allotted time No Topic Allotted time (hours) 1. Overview Capital Investments : Importance & Difficulties Types of Capital Investments Phases of capital budgeting Facets of project Analysis of Capital Budgeting 2 2. Generation & screening of Ideas Generation of Ideas Monitoring of Environment Corporate Appraisal 1 3. Market & Demand Analysis

2 No Topic Allotted time (hours) Collection of Information Conduct of Market Survey Characterisation of Market Demand Forecasting Marketing Plan 2 4. Technical Analysis Product mix Plant Capacity Materials and Utilities Environmental considerations Project charts and layouts Location and site Infrastructure costs 4 Environmental aspects Project Implementation Considering alternatives 5. Financial Estimates & projections Capital cost Estimates of Sales and Production Cost of production Working capital requirements Cash flow statements 4 Project cash flows Financial Modeling using spread sheets 6 6. Investment Criteria NPV Cost Benefit ratio IRR Payback 1 7. Cost of capital Cost of debt Cost of equity Determining the proportions Weighted average cost of capital Determining the optimal capital structure 1 8. Project Risk analysis Sensitivity analysis Managing risks 1 9. Financing Projects Equity capital- sources and cost Debt sources and costs

3 No Topic Allotted time (hours) PE and Venture capital Case studies Total of 9 cases to be presented 4 Total Sustainability in the area of Financial Management The aspect of business sustainability in project financing will be brought into the course with the use of examples through the course, and more specifically through the use of carbon trading case studies to supplement the teaching. Modules Module I: The reasons for undertaking capital investment and understanding the nature of capital expenditure is essential to formulate a viable project. This module will expose the students to the complexity of the decision process. 1) Appreciation of capital budgeting 2) Understand the rationale behind maximizing value of the firm Module II: The key to undertake a profitable capital expenditure decision is dependent on the identification of a sound business venture. This module will expose students to the various methods undertaken by a firm to arrive at a correct capital project to be implemented. 1) List the broad areas of corporate appraisal 2) Understand the key aspects to be considered during preliminary screening of proposals 3) Understand the sources of positive NPV Module III: One of the most important issues before making a capital decision is to assess the potential market for the project s output/product. This module will discuss the methodologies to accurately determine the nature and size of the market of the proposed project

4 1) Understanding the different sources information available to determine size of market 2) Understand the methods of market forecasting 3) How the market plan for a new product is prepared Module IV: The broad purpose of a technical analysis is to ascertain the feasibility of developing a project at a particular location, capacity and cost. This module looks at these elements in the development of the capital budget and the impact on the cost of production. : 1) Understand the reasons of choice of technology. 2) Understand the inputs required to set up and run a production unit. 3) Show the key linkages between various key facets of the project. Module V: The estimates and projections are required for undertaking the financial appraisal of a project. The students will be exposed to the methodology to prepare and understand cashflows 1) Understand key elements of project costs. 2) Describe the components of projections 3) Develop estimates and projections Module VI: There are many criteria to judge the worthiness of a capital expenditure and depend upon the nature of the project. Here the students will get an exposure to both the discounting and non discounting criteria used in project appraisal 1) Understand various investment criteria. 2) Discuss NPV rule 3) Assess the evaluation criteria in terms of practical and theoretical considerations Module VII: The cost of capital is central to evaluating the project and arriving at a viable capital structure. This module has been designed to expose the students to structuring and evaluation of projects in various sectors 1) Understand the cost of debt and equity. 2) Discuss the various methods to calculate the cost of capital 3) Describe the factors effecting cost of capital. Module VIII:

5 The most commonly used tool to assess the risk is sensitivity analysis. This module will expose students to this tool and also how to mitigate some of the risks 1) Understand sensitivity analysis 2) Understand the methods of managing risks. Modules IX: This module deals with the various sources of funding to finance the capital expenditure. The students will also be exposed to new methods of financing like VC and PE. 1) Identify the various sources of funding for projects in India 2) Understand the Venture Capital and Private equity Modules X: This module is for students to identify a particular project and prepare the feasibility report 1) Develop a feasibility report incorporating the elements of project appraisal Required references Prasanna Chandra: Projects Planning, analysis, financing, implementation and review (Tata- McGraw hill) The course is reviewed and commented by the following experts: Mr P.S.Narayan Ecoeye, Social and Community Initiatives, Wipro Mr Brij Sethi Ecoeye, Social and Community Initiatives, Wipro Mr Rakesh Sharma Strategy & Business Development, Philips Electronics India Limited Mr Pawan Deep Singh Strategy & Business Development, Philips Electronics India Limited