Impact of Electricity Tariffs on Capital Budgeting Decision

The assignment discusses the concept of raising loans for business projects and evaluates various criteria to determine the feasibility of a project. The net present value (NPV) is used as a key criterion in determining whether a project is profitable or not. The NPV is calculated by discounting future cash flows using a relevant interest rate. The assignment also explores other criteria such as internal rate of return, average internal rate of return and profitability index. Additionally, it highlights the importance of considering risks and uncertainties when evaluating a project's feasibility.

RUNNING HEAD: Venture capital analysis 1
Name of the student-
Title-Venture capital analysis
University name-

Venture capital analysis
2
Table of Contents
1. Introduction................................................................................................................4
2. Literature review........................................................................................................5
2.1 Project economic analysis..........................................................................................5
2.2 Capital and budgeting process...................................................................................7
2.4 Source of funds..........................................................................................................8
Weighted average cost of capital.....................................................................................9
Leasing decisions.............................................................................................................9
Capital allocation process................................................................................................9
3 Development of methodologies......................................................................................10
Choice of capital sources...................................................................................................12
Conclusion.........................................................................................................................12
Part-B.................................................................................................................................13
Methodologies and development of financial models for smart home constructions.......13
Assumption of financial analysis for smart home construction.........................................14
Constraints of financial analysis for smart home constructions........................................14
Risk analysis......................................................................................................................15
Preparation of Sales budget...............................................................................................15
Projected Material cost......................................................................................................16
Overhead Budget...............................................................................................................17

Venture capital analysis
3
Projected Administration cost............................................................................................17
Project income Statement..................................................................................................18
Projected cash flow statement...........................................................................................20
New Weighted Average Cost for Project A......................................................................22
New Weighted Average Cost for Project B:-....................................................................22
New Weighted Average Cost for Project B:-....................................................................23
Cash flow statement...........................................................................................................24
Part-3..................................................................................................................................26
Conditions of loan finance.................................................................................................26
Eligibility criteria of financing the loan in Smart home constructions..............................26
Documentation for Smart home constructions for financing process...............................27
Equity finance....................................................................................................................29
Financial risk.....................................................................................................................29
References..........................................................................................................................31

Venture capital analysis
4
1. Introduction
` With the increasing ramified economic changes and complexity of finance, each
and every organization are using project economic and using systematic and rational
approach for analysing the different alternatives available for a project. This approach
will help investors to evaluate particular project and select the one project out of the
given level of projects by using various financial tools such as capital budgeting, IRR and
NPV. In this paper, various parts have been described on the use of financial tools and
how investors could use this information’s to make effective investment decisions. In the
starting of this paper literature review has been given. Afterward, research methodologies
and key factors of financial tools such as NPV, cash flow statement analysis and IRR
have been described in research methodologies part, in the end conditions of loans and
bifurcations of the same have been described in determined approach.

Venture capital analysis
5
2. Literature review
As per the perception of Arbabi, et al. 2017 it is evaluated that capital budgeting is the
financial tools which are deployed by investors to evaluate which investment options would give
better return for their investment. There are several tools to gauge the investment return such as
use of NPV, IRR, project economic analysis, cash flow statement analysis and weighted average
cost of capital, allocation of resources.
2.1 Project economic analysis
It is the analysis which helps investors to assess the sustainability of the project and also
assist in enhancing the sustainability and effectiveness of the project selected. This project
economic analysis is accompanied with the following steps which are given as below.
Step-1 Collection of relevant information
In this step, all the required information such as interest rate, project investment initial
amount, annual cost and installment and net present value of investment are collected. It is
considered that if investors could collect this information then it would increase the overall
effectiveness
Step-2
Recognition and define feasible alternatives

Venture capital analysis
6
There are several feasible alternatives which should be accepted by organization to make
effective use of resource. It is considered that investors should undertake the best possible
options which could give high amount of return to investors.
Step-3
Cash flow and other estimates
This step will provide the clear about the amount of cash which investor would get from
the invested amount. It is observed that investors would select the investment project which
gives the highest net present value to investors.
Step-4
Measure of worth criteria
It is evaluated that company should evaluate all the associated factors and associated
business options which investors should evaluate to measure the business activities.
Step-5
Engineering economic analysis
In this step time value of the invested amount is computed buying proper present value
factors. This present value factors are based on various economic factors such as budget,
purchasing power of investors and potential earning capacity. This analysis reflects that if money

Venture capital analysis
7
is collected earlier than the expected time then it will have higher return as compared to future
value.
Step-6
Best alternative selection
This step reflects the various use of financial tools such as Net present value, economic
analysis, Internal rate of return, Attractive Rate of Return (MARR), Benefit/Cost Ratio (B/C),
Future Worth average rate of return, profitability return and other options. With the help of these
available options, investors could evaluate the best possible options which could be undertaken
by the investors while selecting the best investment option from the alternatives.
Step-7
Implementation and monitoring
This step is accompanied with the use of these resources which could be undertaken by
the investors to evaluate the investment decisions. This step is related to using best possible
course of actions to identify the possible negative outcomes in the selected investment options
(Arbabi, et al. 2017).
2.2 Capital and budgeting process
Capital finance and allocation
It is the part of the capital budgeting process in which all the funds will be invested in the
different parts with a view to create value in the investment. Capital financing is related to

Venture capital analysis
8
raising funds from the different sources and at the same time considering the cost of capital
associated with the same. Capital could be raised from internal and external sources. However,
internal source of funds are ideally cheaper than the external sources of funds. Allocation of
capital in different parts of investment options is accompanied by planning, evaluating and
implementing financial policies for the betterment of organization.
2.4 Source of funds
There are several sources of funds which could be used by company or investors to raise
finance from the market. However, company mostly uses debt capital and equity capital funding.
Debt capital
As stated by Jenkinson et al. 2016, it is the amount of capital which includes borrowed
funds or long term and short term debts. Company could raise debt capital by taking loans and
advances from banks and financial institutions. Nonetheless, if company fails to pay interest
amount or debt amount on the due date then these banks and financial institution may take
company in the liquidation and winding up process. Debt capital has high risk but it is available
to the investors at really low cost. The amount of interest is charge on the company which is
deducted from the profit and loss account and reduces the tax payment of company.
Equity capital
As per the views of Rossi, 2014 it is reflected that it is accompanied with reserve,
surplus, net profit and share capital issued by company in market. However, retained earnings
and profit earned by company is internal source of finance which is used by investors and
company to raise funds at very cheap rate. In this case, company plug back its capital in

Venture capital analysis
9
organization. However, company could raise funds by issuing equity capital but it is associated
with the several demerits such as high cost of capital, dilution in ownership and losing control
over the company’s decisions.
Weighted average cost of capital
Company uses various options of raising funds from the market. However, weighted
average cost of capital helps organizations to evaluate the best project source of options which
company could use while selecting the best possible source of finance. With the help of weighted
average cost of capital, company could give weighted to each and every part of finance capital
and associated cost. Eventually, company could use this weighted average cost of capital to
determine the overall cost of capital of company (Jenkinson et al. 2016).
Leasing decisions
Lease could be defined as right obtained by persons to use assets and capital for some
specified period of time. This decision is based on the advantage and disadvantage of leasing
options.
However, lease decision is mainly based upon cost associated and time involved in particular
leased assets. It would be better if taken lease provides less cost as compared to buying assets in
organization (Mohagheghi et al. 2016).
Capital allocation process
This process is related to evaluation of capital expenditure decision making process. It is
accompanied with the planning, analyzing and management of capital projects. Allocation of

Venture capital analysis
10
capital resources should be based on the return dragged from the investment process. It is
considered that allocation of capital should be based on the limner program, use of Capital assets
pricing model and using other various models (Huang & Zhao, 2014).
3 Development of methodologies
There are several methodologies which could be used by researchers to implement
economic analysis of the Smart house construction projects. However, there are several steps
which should be followed for developing effective methodologies (Mohagheghi, Mousavi, &
Vahdani, 2015).
Step-1
Collection of information and data
In this process, all the relevant information such as cost associated with the finance, Net
present value, profitability index and raise finance and deployment of same would be taken into
consideration (Rossi, 2014).
Step-2
Recognize and define feasible alternatives
Investors should evaluate and undertake the best possible options which could give high amount
of return to investors.
Step-3

Venture capital analysis
11
Cash flow analysis
In this process of evaluating Smart house construction projects, company needs to
identify the total value of cash inflow and outflow from the business. It is evaluated that if Smart
house construction projects has higher present value of cash inflow as compared to total value of
cash outflow then this project should be accepted, provided that company has implement present
value factors analysis (Rȩbiasz, Gaweł & Skalna, 2017).
Step-4
Financial analysis
This analysis is accompanied by use of various financial tools such as NPV, IRR,
payback period, cost ratio analysis and future worth.
Sensitivity analysis
It is evaluated that after implementation of financial analysis company should use
sensitivity analysis to identify how much changes company could have in its planned investment
project plan. This sensitivity analysis will reflects all the possible impact of internal and external
factors on the organization.
Step-5
Other non-financial decision making
In this process, all the associated factors and problems faced by company in the financial
decision making will be evaluated to identify the best possible options (Sari & Kahraman, 2015).

Venture capital analysis
12
Step-6
Selection of best alternatives
After implementation of all these activities, company needs to select the option which
will give high return as compared to others.
Choice of capital sources
After evaluating the literature review and associated factors of this paper, it is in
considered that equity capital and debt funds both are associated with various merits and
demerits. However, if company wants to be risk averse then it should raise capital by issues of
equity capital and for taking more risk and keeping cost of capital low, company should raise
fund by issue of debts in market (Larson & Gray, 2013).
Conclusion
There are several factors which impact the finance raising decision of investor. However,
by using different financing tools such as of NPV, IRR, project economic analysis, cash flow
statement analysis and weighted average cost of capital, allocation of Resources Company could
reduce overall cost of capital and funds in market.

Venture capital analysis
13
Part-B
Methodologies and development of financial models for smart
home constructions
This model is used to determine financial model in smart home constructions industry.
The main purpose of this report is to apply various tools and analysis to gauge the constraints
related to economical project management (Burns & Walker, 2015). There are various models
and part which are used to determine the feasibility of project parts. Financial models help to
determine the project feasibility in qualitative terms and identifying the assets which could give
maximum return to investors in home construction project. There are several budgets which are
prepared such as direct material budget, direct labor budget, cost budget and cash flow statement
budget. In this report, income statement and profit and loss accounts have been prepared to
evaluate the overall profit and return earned by project manager in their home constructions
business. In addition to this, cash flow statement, capital structure tree is prepared to evaluate the
direct and indirect inflow of cash flow in the business. This prepared cash flow will reflect the
five year cash inflow and outflow in the business. However, present value of cash flow is
determined on the basis of using cost of capital of the funds. This will give fair idea about the
value of future cash flow in the present. In addition to this, weighted average cost of capital is
used to bifurcate the % of cost associated with the particular source of finance. This will provide
overall cost of capital in home construction of business (Guerra, Magni & Stefanini, 2017). The
main project model is related to use of net present value, profitability index, weighted average
cost of capital. Net present value method will provide the present value of cash inflow and

Venture capital analysis
14
present value of cash outflow. In home construction business, positive present value of cash flow
will be taken as best possible project selection method. In addition to this, Profitability index will
reflect the relation between cash inflow and outflow of business. IF the project maker has same
initial value, and same flow of cash then in this case life of project will be evaluated by using
IRR and Profitability index, irrespective of net present value of cash (Petković, 2015).
Assumption of financial analysis for smart home construction
This financial analysis is used to examine existing project as well as proposed projects.
Financial reports are prepared to evaluate present and proposed project. It is further observed that
financial statements such as profit and loss, income statement, balance sheet and other details
should be analyzed by stakeholder while making investment decisions. These all details are taken
by implementing secondary research program and source of revenue are taken on the basis of
market research. There are various details and data have been collected from various primary and
secondary sources such as advertisement, observation, questionnaire and evaluating financial
statements. This research is based on the detail market research and implementation of financial
analysis tools (Jenkinson, et al. 2016).
Constraints of financial analysis for smart home constructions
The main purpose of this project is to forecast the feasibility of the project and
identifying the present value of budgeted and forecasted flow of cash. Feasibility of project
is prepared on the basis of financial analysis and implementation of various tools such as income
statement, cash flow statement, weighted average cost of capital and profitability index. This will

Venture capital analysis
15
give clear about the selected project and return offered in smart home constructions. This
analysis is made by evaluating stakeholder’s interest like stakeholder, investors and creditors.
The best possible project selection is done on the basis by using profitability index and weighted
average cost of capital (Pasqual, Padilla & Jadotte, 2013).
Risk analysis
Risk analysis is used to evaluate the risk associated with forecasted project. The most
common risk is associated with available time, budget and resources, of the forecasted project.
The main risk in this project is related to the assumptions taken and identifying the true value of
investment. In addition to this, with the help of capital assets pricing model, risk analysis have
been done in determined approach (Asquith & Weiss, 2016).
Preparation of Sales budget
Present details of
the project Future projected amount
2017 2018 2019 2020 2021
Particular
s
Projec
t A
Projec
t B
Proje
ct A
Proje
ct B
Proje
ct A
Proje
ct B
Proje
ct A
Proj
ect B
Proje
ct A
Proj
ect B
Units
Produced 95000 74000
8887
5 79250
1000
00
1030
00
9750
0
9060
0
8567
0
8900
0
Average
Units 110 150 146 175 125 186 221 196 136 166
Projected
Revenue
10450
000
11100
000
1297
5750
13868
750
1250
0000
1915
8000
2154
7500
1775
7600
1165
1120
1477
4000
Less :
Profit
Margin
93500
0
24000
00
1151
575
30296
87.5
1125
000
4324
5000
1933
750
3949
40
1029
112
3693
500
Cost of
goods sold
95150
00
87000
00
1182
4175
10839
062.5
1137
5000
-
2408
1961
3750
1736
2660
1062
2008
1108
0500

Venture capital analysis
16
7000
Material
52000
0
52900
0
4250
000
80100
0
7854
000
9023
450
8245
600
1187
960
5500
650
2387
650
Labor
14000
00
40000
00
1675
400
17698
00
2897
65
1214
538
1987
000
4567
900
3879
00
2435
670
Overhead
90000
0
54500
0
8235
70
43560
0
2105
60
4587
60
1342
800
8765
00
1345
670
9200
0
Other
Overhead
66950
00
36260
00
5075
205
78326
62.5
3020
675
-
3478
3748
8038
350
1073
0300
3387
788
6165
180
Projected Material cost
Projected material cost
Particulars 2017 2018 2019
Amount Amount Amount
Installation and system cost 3078690 3098700 2546789
Boxing and other expenses 648700 664000 757890
Alibiing and Swathing cost 215456 225645 235642
Motor and contractors expenses 1453760 1567890 1897600
Push Bottom and wrong expenses 754790 880000 1287650
Valve and switches cost 80000 900000 1000000
Racks and accessories 1289760 2987600 2345670
Variable speed drives 455000 760000 786500
Outdoor equipment 6574890 7698700 8765400
Overall Projected cost 14551046 18782535 19623141
Projected Material Cost 13855590 17396890 18237499

Venture capital analysis
17
Overhead Budget
Details 2017 2018 2019
Amount Amount Amount
Fuel and other expenses 557800 757800 621700
Electricity charges 530700 456000 500000
Depreciation on Assets 120000 350000 221340
Depreciation on other assets 135000 121900 100560
Projected Overhead Cost 1343500 1685700 1443600
Projected Administration cost
Particulars 2017 2018 2019
Amount Amount Amount
Advertisement 449000 625000 725700
Delivery system 125000 135000 165400
Packing cost 44000 45000 49870
Delivery cost 18000 21350 19100
636000 826350 960070
Projected Selling Expenses
Particulars 2017 2018 2019
Amount Amount Amount
Administering cost 768900 825000 867000
Depreciation cost 425670 325000 274642
General cost 245300 294000 262631
Stationary 122900 155400 196973
Projected Administrative
Cost 1562770 1599400 1601246

Venture capital analysis
18
Project income Statement
2017 2018 2019 2020 2021
Particulars Proje
ct A
Proje
ct B
Proje
ct A
Proje
ct B
Proje
ct A
Proje
ct B
Proje
ct A
Proje
ct B
Proje
ct A
Proje
ct B
Sales
Revenue:
$10,3
50,00
0
$10,6
00,00
0
$12,5
15,75
0
$13,1
18,75
0
$12,2
50,00
0
$18,2
98,00
0
$20,3
37,50
0
$16,7
97,60
0
$11,2
91,12
0
$15,7
74,00
0
Total Income
from Revenue
$10,3
50,00
0
$10,6
00,00
0
$12,5
15,75
0
$13,1
18,75
0
$12,2
50,00
0
$18,2
98,00
0
$20,3
37,50
0
$16,7
97,60
0
$11,2
91,12
0
$15,7
74,00
0
Cost of
Goods Sold:
$6,60
0,000
$4,52
9,000
$5,92
5,400
$2,57
0,800
$8,14
3,765
$10,2
37,98
8
$10,2
32,60
0
$5,75
5,860
$5,88
8,550
$4,82
3,320
Direct
Material
$5,20
0,000
$529,
000
$4,25
0,000
$801,
000
$7,85
4,000
$9,02
3,450
$8,24
5,600
$1,18
7,960
$5,50
0,650
$2,38
7,650
Direct Labor $1,40
0,000
$4,00
0,000
$1,67
5,400
$1,76
9,800
$289,
765
$1,21
4,538
$1,98
7,000
$4,56
7,900
$387,
900
$2,43
5,670
Gross Profit $3,75
0,000
$6,07
1,000
$6,59
0,350
$10,5
47,95
0
$4,10
6,235
$8,06
0,012
$10,1
04,90
0
$11,0
41,74
0
$5,40
2,570
$10,9
50,68
0
Other
Operating
Expenses:
Overhead
Expenses
($1,0
00,00
0)
($645
,000)
($92
3,570
)
($535
,600)
($31
0,560
)
($558
,760)
($1,4
42,80
0)
($976
,500)
($1,4
45,67
0)
($1,0
20,00
0)
Selling
Expenses
($2,0
00,00
0)
($324
,000)
($39
8,765
)
($178
,950)
($45
7,800
)
($360
,570)
($4,5
68,00
0)
($4,9
87,60
0)
($498
,000)
($138
,900)
Administratio
n Expenses
($3,5
00,00
0)
($800
,000)
($59
8,600
)
($743
,299)
($32
5,400
)
($678
,900)
($6,5
48,00
0)
($1,3
45,00
0)
($786
,000)
($1,4
86,50
0)
Net Operating $10,2 $7,84 $8,51 $12,0 $5,19 $9,65 $22,6 $18,3 $8,13 $13,5

Venture capital analysis
19
Income
before
Interest &Tax
50,00
0 0,000 1,285 05,79
9 9,995 8,242 63,70
0
50,84
0 2,240 96,08
0
Less :
Finance Cost
-
9000
00
($1,2
50,00
0)
-
9000
00
($1,2
50,00
0)
-
9000
00
($1,2
50,00
0)
-
9000
00
($1,2
50,00
0)
-
9000
00
($1,2
50,00
0)
Net Operating
Income
before
Interest
$11,1
50,00
0
$9,09
0,000
$9,41
1,285
$13,2
55,79
9
$6,09
9,995
$10,9
08,24
2
$23,5
63,70
0
$19,6
00,84
0
$9,03
2,240
$14,8
46,08
0
Less: Tax
Payable
@30%
$3,34
5,000
$2,72
7,000
$2,82
3,386
$3,97
6,740
$1,82
9,999
$3,27
2,473
$7,06
9,110
$5,88
0,252
$2,70
9,672
$4,45
3,824
Net Profit
After Tax &
Interest
$7,80
5,000
$6,36
3,000
$6,58
7,900
$9,27
9,059
$4,26
9,997
$7,63
5,769
$16,4
94,59
0
$13,7
20,58
8
$6,32
2,568
$10,3
92,25
6
Net Profit
Margin
$3,34
5,000
$2,72
7,000
$2,82
3,386
$3,97
6,740
$1,82
9,999
$3,27
2,473
$7,06
9,110
$5,88
0,252
$2,70
9,672
$4,45
3,824

Venture capital analysis
20
Projected cash flow statement
Projected Cash flow statement
201
7 2018 2019 2020
202
1
Particulars
Proj
ect
A
Proj
ect
B
Proje
ct A
Proj
ect
B
Proje
ct A
Proje
ct B
Proj
ect
A
Proj
ect
B
Proj
ect
A
Proj
ect
B
Cash Flow from
Operating Activities:-
Net Operating Profit
Before Interest & Tax
140
000
0
210
560
0
3869
415
8708
000
2212
475
5661
782
7958
6100
2932
0640
187
290
0
750
528
0
Add : Depreciation
350
000
456
000
1987
90
5100
00
2100
00
3956
00
2250
00
4200
00
145
670
413
900
Less : Tax Expenses
-
280
000
-
226
680
-
8608
24.5
-
2207
400
-
3637
42.5
-
1293
534.5
-
2330
430
-
4747
92
-
261
870
-
184
658
4
Net Cash flow from
Operating Activities
133
000
0
187
628
0
4531
449.
5
1040
5400
2366
217.
5
6559
716.5
8169
1530
2937
5432
198
910
0
893
796
4
Cash Flow from
Investing Activities:-
Purchase of Building
-
400
000
-
500
000 0 0 0
160
000
0
140
000
0
Purchase of Other
Assets
-
160
000
0
-
270
000 0
-
1700
000
-
1300
000 0
180
000
0
610
000
Sale Proceeds from
Capital Assets
Net Cash flow from
Investing Activities
-
200
000
0
-
770
000 0 0 0
-
1700
000
-
1300
000 0
340
000
0
201
000
0

Venture capital analysis
21
Cash Flow from
Financing Activities:-
Loan from Bank
140
000
0
250
000
0
Issue of Bond
140
000
0
Issue of Shares
420
000
0
250
000
0
Finance Cost
-
900
000
-
125
000
0
-
9000
00
-
1250
000
-
1725
00
-
1250
000
-
9000
00
-
1250
000
-
900
000
-
125
000
0
Dividend Paid
-
654
00
-
214
500
-
6000
0
-
2500
00
-
8200
0
-
4200
00
-
9650
0
-
4267
00
-
142
300
-
499
000
Net Cash flow from
Financing Activities
603
460
0
353
550
0
-
9600
00
-
1500
000
-
2545
00
-
1670
000
-
9965
00
-
1676
700
-
104
230
0
-
174
900
0
Net Cash Inflow
during the year
736
460
0
541
178
0
3571
449.
5
8905
400
2111
717.
5
4889
716.5
8069
5030
2769
8732
946
800
718
896
4
Add : Opening Cash
Balance 0 0
1800
00
3500
000
6700
00
5234
500
4000
00
7000
00
120
000
0
266
790
0
Closing Cash Balance
736
460
0
541
178
0
3751
449.
5
1240
5400
2781
717.
5
1012
4216.
5
8109
5030
2839
8732
214
680
0
985
686
4

Venture capital analysis
22
New Weighted Average Cost for Project A
New Weighted Average Cost for Project A:-
Particulars Amount
Weigh
t Cost
Tax
Rate
Weighted
Cost
Equity 5200000 0.6
0.11
5 0.069
Total Equity 5200000 0.6
0.11
5 0.069
Bonds 1500000 0.5
0.04
5 0.0225
Loan from
Bank 1500000 0.5 0.08 0.04
Total Debt 3000000 1
0.12
5 0 0.0625
Total Capital
1640000
0 1 0.3 0.11275
New Weighted Average Cost for Project B:-
Particul
ars
A
mount
W
eight
C
ost
T
ax Rate
Weight
ed Cost
Equity
25
00000
5
0%
6
.75% 3.375%
Total
Equity
25
00000
5
0%
6
.75% 3.375%

Venture capital analysis
23
Loan
from Bank
25
00000
1
00.00%
7
.5% 7.5%
Total
Debt
25
00000
5
0% 7.5%
Total
Capital
50
000000
1
00%
3
0% 8.625%
New Weighted Average Cost for Project B:-
New Weighted
Average Cost
for Project B:-
Particulars Amount Weight Cost
Tax
Rate
Weighted
Cost
Equity 3500000 0.6 0.0675 0.03375
Total Equity 3500000 0.4 0.0675 0.03375
Loan from
Bank 3500000 1 0.075 0.075
Total Debt 3500000 0.5 0.075
Total Capital
1400000
0 1 0.3 0.08625

Venture capital analysis
24
Cash flow statement
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flow from Operating
Activities 1400000
89459
66
29587
33
864806
70 1156725
Sale of Property 0 0 0
Investment in Capital Assets
-
16000
00 120000
Net Cash Flow from Operating
Activities 1400000
89459
66
45587
33
864806
70 1036725
WACC 1 0.11275 0.0446
0.044
6 0.0446 0.0446 0.0446
Discounting Factor
0.957276
739
0.916
38
0.8772
28
0.8397
5
0.803873
164
Discounted Cash Flow
-
700000
00
59772.35
958
36562
6
17835
7.5
323894
8
37169.43
511
Total Discounted Cash Flow 1
72698261
.93
Initial Investment 82698261
Net Present Value 1
9999999.
067
Profitability Index 1
1.137554
858

Venture capital analysis
25
NPV for Project B:-
NPV for Project B:-
Particulars Year 0 Year 1 Year
2 Year 3 Year 4 Year 5
Cash Flow from
Operating Activities 2334920 79106
00
5663847.
5 29265848 6072596
Sale of Property 0 0 0 1900000
Investment in Capital
Assets
($1,400,0
00)
Net Cash Flow from
Operating Activities 2334920 79106
00
$7,063,84
8
$29,265,8
48 4172596
WACC 1 8.63% 11.60% 11.60
% 11.60% 11.60% 11.60%
Discounting Factor 0.896057
348
0.8029
2
0.719461
264
0.644678
552
0.577668
953
Discounted Cash Flow
-
300000
00
2001895.
6
55486
50 2348210 18222370 4547751
Total Discounted Cash
Flow 1 32668876
Initial Investment 40000000
Net Present Value 1 7331124
Profitability Index 1 1.224406986

Venture capital analysis
26
Part-3
Conditions of loan finance
This report reflects the financial analysis for both the projects named Project A and
Project B. This projected analysis is done by evaluating projected cash flow, weighted average
cost, computing net present value, profitability index. It is observed that project A has initial
investment- $ 4, 00, 00, 000 and 3, 00, 00,000. It is observed that both projects have several
incomes and benefits for the project manager. It is evaluated that the benefits of having less
capital requirement is related to management of business with less cost of capital. It is considered
that project B 3, 00,00,000 Capital requirements. Project B has main benefits such as less cash
outflow as compared to B. higher cash inflow throughout the time, and positive net cash present
value. In addition to this, both projects have positive net present value. Project B adopted has
more positive net present value than project A. If investors want to create value on his
investment then he should adopt project which gives higher net present value. Banks and
financial institutions will be more inclined towards providing cash outflow which offer positive
cash inflow and accompanied with less capital requirement (Malek, et al. 2017).
Eligibility criteria of financing the loan in Smart home
constructions
There are several terms and conditions which should be fulfilled by Smart home
constructions for raising finance and loans (Oehmke, 2017)
This Smart home construction should be affiliated with the collages having programs of
networking engineering.

Venture capital analysis
27
Smart home constructions should also finance the research and development department
and its equipment’s from Banks and financial institutions.
Australian Banks and financial institutions will offer various terms facility to
manufacturing company.
Documentation for Smart home constructions for financing
process
It is the required testimony or set records provided on papers and online in favor of
stakeholders’ interest. These documents reduce the risk of uncertainty and security problems
between borrowers and lenders. These processes increase the transparency and create underlying
assets of borrowers for lenders. It also removes the fears and confusions being faced by lenders
while lending money to investor’s (Borenstein, 2017).
There are several requirements and terms which should be fulfilled by Smart home
constructions while complying with the rules and regulations for raising finance.
Smart home constructions should submit its annual report with the banks and financial
institution while raising loans.
Smart home constructions will also create charge on the assets by the banks with a view
to secure its debts and term loan.
Banks and financial institutions should consider brand image or goodwill of Smart home
constructions while grating loan and debts.
Smart home constructions needs to submit know your customers forms while applying
for debts from the banks.

Venture capital analysis
28
All the terms and conditions set up by Banks should be complied by Smart home
constructions ( Leyman & Vanhoucke, 2017)

Venture capital analysis
29
Equity finance
There are several financial sources which could be used Smart home constructions for
raising finance such as equity finance, debt funds, creating charge and taking credit facilities.
Equity finance is the method which is used by company to raise funds from the capital by
diluting ownership of company. This will increase the overall cost of capital but also reduce the
financial leverage in determined approach. Each and every company should consider their debt
to equity structure while raising funds from the market. It is observed that if company has low
level of financial risk then it should raise funds by issue of debentures and raising loans on the
other hand, if company has high capital risk then it should issues share capital in the market. If
company has high profit earing capacity then company should issues debentures. It is clear to
understand that interest amount paid to debenture holders or banks is the charge on the profit. In
case if company has no adequate profit to satisfy the interest charge amount then these persons
may take the company in liquidation. Project B has capital requirement of 14000000 which is
equally divided into four parts such as 3,50,00,000 for each parts named equity, dentures, loans and other
funding. On the other hand, project A has requirement of 5,00,00,000. This has also been raised from the
different funding of projects. However, company needs to adopt the capital structure which has low level
of cost of capital (All, et al. 2017).
Financial risk
It is evaluated that raising finance through equity finance, debt funds, creating charge and
taking credit facilities are the major source of finance. Equity finance increase the overall cost of
capital but also reduce the financial leverage in determined approach. Company needs to

Venture capital analysis
30
consider their debt to equity structure while raising funds from the market. It is observed that if
company has low level of financial risk then it should raise funds by issue of debentures and
raising loans. Financial risk of the company could be determined by using financial leverage
computation and debt to equity ratio. Project A has capital requirement of 16400000 to
effectively running the project. On the other hand, project B has total capital value 14000000 in its
business. It is observed that if project manager will chose the project A then he will have project net
present value of 9999999.067 which is very high and mark determined approach. This project has
shown positive profitability index 1.13 which reflects the effective nexus between cash inflow
and outflow amount of this project A. Further observed that, project B has net present value of
7331124 which is very low as compared to project A. In addition to this, profitability index of
project B is .10 points as compared to Project A. This profitability index states the relationship
between cost and benefits. It will also help user to determine the overall feasibility of report
(Ciolkosz, et al. 2017).
After evaluating all the details and information given in this report, it is observed that
company needs to evaluate all the associate factors and Net present value, economic analysis,
Internal rate of return, Attractive Rate of Return (MARR), Benefit/Cost Ratio (B/C), Future
Worth average rate of return, profitability return and other options before selecting any options.
In this report, project A has positive factors and provide information that project A should be
selected by the project manager in his investment decisions (Arbabi, et al. 2017).

Venture capital analysis
31
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