Page 87 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Fundamentals of Project Management

Notes Incentive Sources: The government and its agencies may provide financial support as an incentive
to certain types of promoters or for setting up industrial units in certain locations.
Miscellaneous Fixed Assets: Fixed assets and machinery which are not part of the direct
manufacturing process may be referred to as miscellaneous fixed assets.
Preliminary Expenses: Expenses incurred for identifying the project, conducting the market
survey, preparing the feasibility report, drafting the memorandum and articles of association,
and incorporating the company are, referred to as preliminary expenses.
Pre-operative Expenses: Expenses of the following types incurred till the commencement of
commercial production are referred to as pre-operative expenses.
Provision for Contingencies: A provision for contingencies is made to provide for certain
unforeseen expenses and price increases over and above the normal inflation rate which is
already incorporated in the cost estimates
Share Capital: There are two types of share capital equity capital and preference capital. Equity
capital represents the contribution made by the owners of the business, the equity shareholders,
who enjoy the rewards and bear the risks of ownership.

Term Loans: Provided by financial institutions and commercial banks, term loans represent
secured borrowings which are a very important source (and sometimes, the major source) for
financing new projects as well as for the expansion, modernization, and renovation schemes of
existing firms.

4.11 Review Questions

1. Define financial projections.

2. What do you know about preliminary and capital issue expenses?
3. Describe, in breif, the pre-operative expenses.
4. Discuss, in brief, the norms of regulatory bodies and financial institutions.
5. Explain the working capital requirement and its financing.

6. Explain, in detail, the time value of money.
7. What are the factors affecting the weighted average cost of capital?
8. Discuss, in detail, the appraisal criteria in projects.
9. Discuss the risk analysis in capital investment decisions.

10. What are the strategies for controlling risk?

Answers: Self Assessment

1. Provision 2. Commercial
3. Projects 4. Margin
5. Pre-operative 6. promissory

7. Contingency 8. Preliminary
9. balance sheet 10. annuity
11. Logic 12. Structure

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