(C) Group Assignment (40%) (Week 12:  28 May 18)

 
(C) Group Assignment (40%) (Week 12:  28 May 18)
 
The group assignment consists of the following parts:
 

Performance Marks (40)
1.    Literature review report 10
2.    Written report 25
3.    Team presentation   5

 
The overall individual mark allocated to each student will take into consideration the data obtained through the peer review.
 
 
 
 
 
 
(C1) LITERATURE REVIEW
 
This is a review of the current literature on “Project Finance”.
 
Your goal for this part of the assignment is to conduct a literature review of

  • Project Finance (a particular approach to funding projects that has been popular in recent years) and
  • compare it with any alternative forms of funding projects.

(Some of the basic material will be covered in class but you will be expected to extend your research beyond these basic concepts. The research you do in this literature review will help you understand the expectations and ideas you will need for the second part of the assignment where you will do the financial analysis on a “stand alone” project (i.e. a project funded through Project Finance).
 

  • You will need to cover the different varieties of Project Finance
    • this includes, at the very least,
      • an analysis of Project Finance in general and
      • PPP projects specifically. (Australia is one of the world’s leaders in using PPP to develop civil infrastructure and as such it is highly relevant in our commercial settings.)

 

  • You will be expected to provide examples of where Project Finance has been used
    • in Australia and elsewhere,
    • where it has been successful and where it has not and
    • what have been the key drivers of the success or failure of these projects (in your opinion).

 
 
 

  • Where possible this analysis should discuss the financial measures used for these projects
    • total capital employed,
    • financial leverage,
    • forward estimates of costs and revenue,
    • decision-making biases,
    • financial techniques etc.

 
The literature review should be submitted as part of the final report

  • Length of the literature is 12 – 15 pages (from the contents page to summary and conclusions
  • These pages excluding title page or references.
  • References should be placed after summary and conclusions

 
Marking:

Focus Marks
Appropriate literature selection 1
Structure and format 1
Identification of knowledge gaps 1
Analysis and consolidation 3
Conclusion/summary 3
Proper referencing 1
Total: 10

 
 
 
 
 
(C2) WRITTEN REPORT
 
Project Brief:
 

  • Your team has been given the job of putting together a proposal for the PURCHASE OF A LARGE ‘CAPITAL ASSET to the board of directors of your company.

 

  • Several ideas have been mentioned, among them
    • a new port facility to export coal from the Galilee Basin in Queensland and
    • a new Public Private Partnership (PPP) to build a transport solution for Northern Beaches (to solve the Spit Bridge bottleneck).

 

  • You and your team also have some ideas of your own. In discussing this ‘new project’ with senior managers in your company you have been told that the directors are interested in looking at
    • options that are environmentally friendly as well as
    • other options that aren’t concerned with the environmental impact (other than what is already legislated by local and federal law).

 

  • So your team has decided to put together TWO OPTIONS for the board to select from:
  • one is a ‘Business as usual’ option and
  • the other is a ‘Green solution’ option.

 

  • Before the board decides whether or not to fund either of your two options,
    • You need to be able to convince them of their FINANCIAL VIABILITY using
      • techniques covered in the lecture materials and
      • based on sound financial modelling in Excel.
      • It is very rare for one project to be universally better than another based on the financial analysis (i.e. NPV, IRR, PBP etc. very rarely all point to one project being better than another),
    • You are expected to make a RECOMMENDATION based on
      • potentially conflicting analysis and to
      • give sound reasons to support your recommendation.

 

  • Furthermore when considering the FINANCIAL VIABILITY of your project, you need to take the following into account:
  • Demand: The future demand for what the asset will produce (‘demand side’). This will be influenced by the
  • price the purchaser is willing to pay
  • the political/environmental concerns of your purchasers. (Think about what is happening from their side, e.g. if your customer is in India or China, the economic and political factors in those countries are different from Australia and this influences their decisions.
  • But even in the same country a buyer sees the local politics and economics differently from the seller.

 

  • Supply: How much you can produce and at what costs per unit produced ,
  • What are the factors that could increase or decrease either capacity or costs? (these are often the two most important factors driving the supply side)

 

  • In general you will need to
  • be as complete as possible in your costing of the project (see the notes on Life-Cycle Costing) and
  • Forecasting of the demand for what you are producing, however these will always only be your ‘best estimates’.

 
 

  • This is to be a ‘stand alone’ project (see lecture notes for “Case study, Brisbane airport link …” and “The Structuring of Projects”). If your board accepts one of your options, they will
    • provide 20% of the money (as equity) necessary to start the project,
    • you need to fund the remaining 80% capital investment from either
      • debt or equity and
      • depending on the debt to equity ratio (the ‘leverage’ of the project). The long term viability of the two options may change because of the dependency of the WACC on the debt to equity ratio.

 
 

  • Risk Analysis: You have to be able to demonstrate that you have done a good job of evaluating the risks
    • if you have over-estimated or under-estimated some important estimate and what impact that has on the value of the project.
    • From this point of view the purpose of this project is to demonstrate that you can implement the tools discussed in this course, assess the sensitivity of those tools to changing assumptions/estimates/economic conditions and make a recommendation based on the financial assessment of the two options.

 
 
 
 
 
 
 
 
 
 
 
 
The Structure of the Report:

  • Should be presented as a professional piece of work (I suggest part of your research should include what a professional report looks like if you haven’t seen one yet).
  • The length is a maximum of 20 pages from the covering page through to the summary, conclusions and recommendations. Excluding list of references and appendices.

 

  • It will need to include, as a minimum, the following sections:
  • Covering page
  • group name
  • number and
  • members,
  • title of the project etc.

 

  • Executive summary to include
  • recommendation and a
  • summary of the most important numbers and a
  • brief descriptions of the project as to why it is worthwhile investing in this project)
  • Introduction and background to your project
  • Financial analysis of techniques used (3 marks)
    • capital needed,
    • costs,
    • income,
    • IRR,
    • ROI,
    • WACC,
    • CAPM,
    • lifecycle costing,
    • bonds analysis,
    • spreadsheet modelling,
    • payback period etc

 

  • Financial Structure of the Project

 

  • Risk analysis
    • What are you unsure of?
    • How will manage these risks?
    • At what level do these risks occur:
      • project level,
      • funding level,
    • Costs and Income/Revenue stream
      • Micro-economic,
      • Macro-economic etc.
    • Summary, conclusion and recommendations
    • References
    • Appendices
      • excel spreadsheets (2 marks)
      • other important workings not included in the main body of the report

 
 
Marking:

Category Focus Marks
Quality of Presentation Grammar, spelling, style 2
Structure and flow of the report 2
Guidelines have been met 2
Technical Components Financial analysis techniques used 3
Financial structure of the project 3
Costs and revenue streams 3
Excel Modelling 2
Overall Impression of the Report Is the proposal a convincing proposal 4
Attention to detail 4
Total: 25

 
 

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