Page 168 - DMGT521_PROJECT_MANAGEMENT

Unit 9: Financial Estimates and Projections

Self Assessment Notes

Fill in the blanks:
11. The ………………… of this approach is fairly simple. Firms that have risky and consequently
high cost debt will also have risky and consequently high cost equity.

12. At the outset we assumed, inter alia, that the adoption of new investment proposals will
not change either the risk complexion or the capital ………………… of the firm.
13. If interest rates in the ………………… rise, the cost of debt to firms increases and vice
versa.
14. The ………………… risk premium reflects the perceived risk of equity stocks and investor
aversion to risk.
15. Often firms use book value weights in the existing capital structure to calculate the
…………………
16. The cost of capital for a ………………… is calculated on the basis of the specific sources of
finance used for it.

9.11 Summary

 A budget is an important concept in microeconomics, which uses a budget line to illustrate
the trade-offs between two or more goods.

 Conceptually, the cost of project represents the total of all items of outlay associated with
a project which are supported by long-term funds.
 The cost of land varies considerably from one location to another.

 The cost of the buildings and civil works depends on the kinds of structures required
which, in turn, are dictated largely by the requirements of the manufacturing process.
 Services of foreign technicians may be required in India for setting up the project and
supervising the trial runs.
 Fixed assets and machinery which are not part of the direct manufacturing process may be
referred to as miscellaneous fixed assets.

 Expenses of the following types incurred till the commencement of commercial production
are referred to as pre operative expenses.
 The principal support for working capital is provided by commercial banks and trade
creditors.
 There are two types of share capital equity capital and preference capital.
 In general the cost of debt funds is lower than the cost of equity funds.

 The selling expenses depend mainly on the nature of industry and the kind of competitive
conditions that prevail.

9.12 Keywords

Debenture Capital: Akin to promissory notes, debentures are instruments for raising debt capital.

Deferred Credit: Many a time the suppliers of the plant and machinery offer a deferred credit
facility under which payment for the purchase of the plant and machinery can be made over a
period of time.

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