QUESTION ONE

Zambian government officials have in several for advocated for the use of Public Private Partnerships (PPP) to enhance the delivery of public infrastructure projects in the country. This comes from the backdrop that despite the PPP Act 14 being enacted in August 2009, very few projects have been implemented in Zambia through the PPP model.

With the aid of a practical example of a PPP project in Zambia, explain the term Public private partnership (PPP).

Identify and briefly discuss five(5) models of PPP

Briefly discuss the reasons(objectives) why public institutions enter into PPP agreements

Briefly discuss the challenges encountered in the implementation of PPP

QUESTION TWO

The University of Lusaka (Unilus) intends to build a new campus on a newly acquired piece of land along the Great East Road. It intends to use the project finance model to realize this project and has therefore set up a special purpose vehicle (SPV) called University of Lusaka(2014) Limited(Unilus 2014).Unilus will hold 60% of the equity of Unilus 2014 while the other 40% will be shared equally between City Works Construction Limited and Top-Hole consulting Limited.

The total cost of this project is $2Million.The shareholders will provide $500,000 while the balance will be raised from the Zambian syndicated loan Markets. The idea to raise funds from via a syndicated loan was made by the consultants who were engaged to the best way of financing the project. The shareholders and project team have limited knowledge on what loan syndication entails.

Required:

Explain what loan syndication is and what the process involves.

Different banks play different roles in the syndicated process. Discuss the roles banks play in the loan syndication process.

Explain the forms of compensation typically available to banks who participate in a syndicate.

Lead managers typically invite a number of banks to participate in the syndicate by way of booking the transaction on their balance sheets. However, in practice not all banks take up the invitation to participate. Discuss some of the reasons banks cite for their non-participation in a project finance deal

QUESTION THREE

Big-Brain, a Lusaka company is considering a K9, 000,000 investment in a product called ALPHA with a life span of four years. The scrap value of the equipment used in the production of ALPHA is estimated to be K1, 500,000 at end of year four. The company has estimated production costs to be as follows:

Variable costs are K8 per unit and;

Fixed costs are K270,000 per year

The company expects to produce and sell 250,000 units per year. The estimated selling price for ALPHA is K21 per unit. Included in the fixed costs is depreciated of K15, 000 per year.

The project cost of capital is 10%.

Required:

Find the relevant cash flows for years zero through four

Calculate the NPV of the project and advise whether the investment is financially viable.

Calculate the payback period and discounted payback period

Calculate the PI and the ARR for the project

Calculate the Internal Rate of Return (IRR) of the project and advise whether the investment is financially viable.

QUESTION FOUR

In order to determine the ability of a project to meet its debt obligations, it is important to forecast the project cash flows. Explain why it is important to carry out a cash flow analysis in project finance and the five factors that need to be considered when calculating cash flows.

Explain the two terms in relation to project finance Limited recourse and Non- recourse.

Identify three groups of potential risks to project finance and explain how you can hedge against such while managing the project.

QUESTION FIVE

Venture capitalists are businesses that will invest in new start-ups. They will give the new start-up financial backing and advice in return for a share of the company and any potential profits, this could be an effective way to raise project finances for start-up and other project ventures that have limited operating history, little experience and dont have access to capital market.

List and explain the stages in the funding process.

List and explain the different types of capital funding available from Venture capitalists.

The exit strategy is the venture capitalist way of cashing out on its investment in a portfolio company. List and explain three exit strategies for venture capitalist.

You are seeking K1.5million from a venture capitalist to finance the launch of your online financial search engine. You and the VC agree that your venture is currently worth K3million, and when the company goes public in an IPO in five years, it is expected to have a market capitalization of K20 million. Given the companys stage of development, the VC requires a 50 percent return on investment. What fraction of the firm will the VC receive in exchange for its K1.5 million investment in your company?