How the cash flows behave under a variety of conditions

Reference no: EM132308022

PROJECT FINANCE

This is a group assignment. A group can consist of one, two or three students. The purpose of the assignment is to examine how the cash flows, internal rates of return and cover ratios of the project behave under a variety of conditions. Monte Carlo Simulation is used as a tool for this purpose.

COGENERATION PROJECT

Details of revenue generation, expenditure and capex are given in Chapter 10: Pages 165 - 170 and Table 10.1 (Page 166), Table 10.2 (Page 170).

Based on the information you are expected to create a financial model and do simulation.

Before doing the simulation your model should calculate the following:

CALCULATE CFO, EBIT, DSCRAND Project IRR for the base case.The model should be created using Excel

DSCR (Debt Service Coverage Ratio) should be more than 1.5 in every year of operation. Debt has to be repaid in the first 10 years.

Passive Equity sponsors expect a minimum Equity IRR of 25% and Lenders expect a minimum Debt IRR of 10%.

For the purpose of simulation the following variables should be allowed to vary randomly:

1. Interest rate during construction period : 10 % to 15%

2. Annual increase in price of electricity: 3% to 8%

3. PPI: Mean 5% and standard deviation 2%

4. Annual increase in price of natural gas: Mean 6% and standard deviation 5%

5. Capacity utilization: 75% to 95%

Your simulation should show the behavior of CFO, EBIT,DSCR and Project IRR for a minimum of 100 simulation runs. Present using graphs.

Is the project viable with current capital structure. Do you suggest a different capital structure.

Present a printed copy of the report in two parts: Part 1 showing the cash flow calculations for the base case and part 2 showing the simulation results.

Attachment:- PROJECT FINANCE.rar

Reference no: EM132308022

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