Infrastructure Project Finance

Basics
•
•
•

Mona Iyer
CEPT University
 Session Outline

Concepts of Depreciation and Tax

•

Components of Cash Flow

•

•
 Profit and loss Account
• PROFIT BEFORE DEPRE & TAX (A-B)+(C-D)
i.e. Net Operating Profit + Net Non-Operating Profit
• Depreciation as per CO Act
PROFIT BEFORE TAX
Corporate Tax
PROFIT AFTER TAX
•
 Depreciation
• A regular reduction in asset value over time.
• Tax deductable
• As per IT Act and Co. Act
• Two Methods
• Written Down Value Method
• Straight Line Method
• WDV for IT purpose
• SLM for Company’s internal P & L
•

•
 Depreciation
• Written Down Value Method
•

• Depreciation calculated on written down value

•

• Eg. Depreciation rate 10%

• Year 1 2 3 4
• Value of Asset 100 90 81 72.9
• Depreciation 10 9 8.1 7.3
• WDV90 81 72.9 65.6
•

• Dn = I (1-d)^(n-1) * d
 Depreciation
• Straight Line Method
•

• Depreciation calculated on Initial Cost

•

• Eg. Depreciation rate 10%

• Year 1 2 3 4
• Value of Asset 100 90 80 70
• Depreciation 10 10 10 10
• Dep’ted Value90 80 70 60
 Tax
• As per section 80 IA
•

•Taxable income
•Corporate Tax

• A levy placed on the profit; different rates are used for different levels of
profits and types of projects (@ 35% for Infra projects)
• Tax Holiday
• 10 years for initial 15-20 years
• Mini Alternative (MAT) Tax/ Alternative Mini Tax (AMT)
• To avoid zero tax scenario (@ 7-7.7%)
•

•
 Cash Flows
It is inflow and outflow of cash that matters
•

practically in any project

•Cash flow estimation is most critical in
investment/financial analysis
Financial manager prepares this in consultation
•

with experts in accounting, production, marketing,

economics, technology etc.
It is the cash which project has in hands to make
•

payments to creditors, invest for future expansion

and operations distribute to share holders etc
Cashflow is difference between the cash received
•

and cash paid out

 Cash Flows
• (operating, investing, financing activities) for desired liquidity
•

• SOURCES OF CASH
• Net Profit After Depreciation & Taxes
• Depreciation
• Transfer from Cash Surplus
• Transfer from Debt Service Reserve
• Sub-ordinated Debt /grant /equity for Rolling Stock additions during Operations
• A. Total Sources of Cash
•

• USES OF CASH
• Transfer to Debt Service Reserve
• Transfer to Cash surplus
• Rolling Stock Additions during Operations Period
• B. Total Uses of Cash
•

• NET CHANGES IN CASH BALANCE (A-B)

•

•
 Cash Flows
• Three stages of cash flow
• Initial Investment (Capital investment plan)
• Net Annual Cash Flow (Cash Flow Statement)
• Terminal Cash Flows (Cash Flow Statement)
• Salvage value of assets sold (if any)
• Cash proceeds to be added as cash inflow in last year
• Removal cost (to replace existing asset)
•
• Tax Holiday: A benefit granted to a project that
provides project owners an exemption from
taxation for a negotiated or statutory period.
• Salvage Value: Market price of asset/investment
at time of sale