Funds may be diverted to other purposes tax no direct

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Unformatted text preview: x and benefit No Once facilities are completed, they are priced essentially as a free good Once free good (no capital recovery provision) Thus pricing fails to act as a controlling mechanism with respect to either Thus capacity or demand in public facilities (e.g., highways, transit, water) Pricing Philosophy in Private Sector Pricing Predicted upon balancing adequate rate of return with attraction Predicted and satisfaction of sufficient demand Market mechanisms regulate not only price but also available Market capacity and adequacy of services Users select desired services and quanities from set of already Users available options, with demonstrated track records and known prices. Users’ willingness to pay supported by readily perceived benefits, Users quality and reliability of service Examples; housing; airlines; freight carriers, utilities (telephone, Examples; electricity); toll roads - 10 Privatization 9 Dilemma of subsidy cuts, fee increases, and services 1 Initial provision of services by entrepreneurs 2 Consolidation of firms 8 Declining efficiency 3 Regulation of fee and franchises 7 Public subsidies 6 Public takeover 5 Withdrawal of capital and services 4 Decline in profitability Financing Aspect of Construction Financing Owner Financing Owner Financing Public Projects Financing Financing of Private Projects Financing Contractor Financing Contractor Financial Implications of Bidding and Contract Methods Financial Lump Sum or Fixed Price Contract Lump Unit Price Contract Unit Cost Plus Fee Contract Cost Target Price Plus Profit Contract Target Guaranteed Maximum Price Contract Guaranteed Financing Aspect of Construction (2) Financing Typical Cash Flows of a Construction Project Typical Pre-Bid Expenses Pre Bonds Bonds Types of Bonds Types Cost of Bonds Cost Benefits of Bonds Benefits Bond Underwriting Bond Mobilization Expenses and Advance Payments Mobilization Progress Payments and Expenditures Progress Final Account and Retention Payments Final Corporate Financing Requirements Corporate Working Capital Working Plant and Equipment Plant Financing Aspect of Construction (3) Role of Commercial Banks Role General Arrangements General Establishing Banking Relations Establishing Specifically Banks require: Specifically General information about the financial and other background of the company, General Specific ratios and figures illustrative the company’s financial position, and Specific company Specific information about the purpose of the under-extension financial services. Specific Financial Figures and Ratios of Interest to Commercial Banks Commercial Basic Figures or Ratios Explanation Current ratio Current assets/current liabilities Acid test ratio (Cash + accounts receivable)/current liabilities Working capital Current assets – current liabilities Working capital turnover Net sales/working capital Other ratios & relationships Net profits/net sales Total liabilities/net worth Net profit/working capital Accounts receivable/billings x 35 days Debt to equity ratio Average age of accounts receivable Cash conversion period Average age of accounts receivable + average age of inventory Cash demand period Cash conversion period – average age of accounts payable Adapted from: Financial Management for Contractors, The Fails Management Institute, McGraw-Hill, 1981 Financial and Management Issues of Interest to Commercial Banks Interest Financial Issues Financial Growth record Growth Trends in profits Trends Credit rating Credit rating Fixed payments Fixed Bonding capacity Bonding Other bank references Other Purpose of credit Purpose Source of repayment Source Timing of repayment Timing Cash flow projections Cash Business exposure Business Political exposure Political exposure Management Issues Management structure Management structure Management capabilities Management Management information systems Management practices Equipment policies Equipment Types of projects Countries working Outlook of operations Reputation among clients Reputation among clients Reputation among subcontractors Sources: 1. The Fails Management Institute, Financial Management for Contractors, McGrawHill, 1981; Journal of Commercial Bank Lending, various issues. World Bank Project Cycle World Identification Identification Preparation Preparation Appraisal Appraisal Negotiations Negotiations Implementation & Supervision Implementation Evaluation Evaluation IBRD Loan to Project Company with Country Guarantee with IBRD Guarantee of Loan Repayment Loan Country Loan Repayment Project Revenues Project Company Equity Investment Share Holders Output Purchaser IBRD Loan to Country with On-lending to Project Company On IBRD Loan Repayment Project Agreement Loa n Country Sub-Loan Sub-Loan Repayment Project Revenues Project Company Equity Investment Share Holders Output Purchaser IBRD Loan for “Enclave” Project Guarantee of Loan Repayment IBRD Country Loan Repayment Loan Guarantee Loan (and Security) Agreement Off-Shore Trust Account Return to Project Company Project Company Equity Investment Share Holders Output Project Revenues Purchaser World Bank Financial Debt Refinancing World Loan World Bank Country Loan Repayment Project Agreement Commercial Lenders Commercial Loan Commercial Loan Repayment Project Revenues Project Company Equity Investment Share Holders Output Purchaser World Bank Financial Investment Facility World Loan World Bank Country Loan Repayment Loan Proceeds Project Agreement Loan Repayment...
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This note was uploaded on 07/25/2012 for the course ECON 111 taught by Professor King during the Spring '12 term at CSU Bakersfield.

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