Assignment 1:

A financial model template has been provided to you, which you should use to assess the feasibility of undertaking the Hayatsu Water Supply project. You should complete the model for you to be able to make a holistic assessment of the investment potential of the proposed project.

You should complete the following modules in your financial model:

1. Inputs Module: you should enter all of the assumptions, data and parameters necessary to compute the key components of the project; such as project costs, financing and revenues. All the information you require for this module has been provided in the preceding sections of this handout.

1. Calculations Module: utilizing the information you entered into the input's module, you are to complete the following sections of the calculation's module

a.Inflation, prices indices, exchange rates and interest rates

b.Capital expenditure

c.Economic depreciation and residual values

d.Tax depreciation and tax expense

e.Project financing

f.Load schedule

g.Water demand and supply

h.Water revenues

i.Operating expenditure

j.Working capital

1. Financial Analysis Module: in this module, you are required to do the following:

a.Construct an Income Statement for this project.

b.Construct a Financial Cash Flow from the Total Investment Point of View.

c.Compute the project's Annual Debt Service Coverage Ratios (ADSCRs) and Loan Life Coverage Ratios (LLCRs).

d.Construct a Financial Cash Flow from the Equity Point of View.

e.Compute the project's financial viability indicators (the project's Net Present Value [NPV] and the Internal Rate of Return [IRR]).

1. Sensitivity Analysis Module: In this module, you are required to undertake sensitivity analysis on the following project input variables:

a.Domestic Inflation Rate (2% - 14%)

b.Foreign Inflation Rate (1% - 5%)

c.Percentage Change in the Initial Proposed Water Tariff (-20% - +20%)

d.Investment Cost Overrun Factor (-30% - +30%)

e.Real Interest Rate (1.5% - 3.5%)