The document outlines the cost components of a project and the means of financing the project costs. It discusses the major cost elements like land and site development, buildings and civil works, plant and machinery, technical know-how fees, and pre-operative expenses. It also explains the primary sources of project financing such as share capital, term loans, debentures, deferred credit, government incentives, and miscellaneous sources.

1. B Y :
0 8 - M B A - I B - 1 2
N E H A S I N G H
COST OF PROJECT
&
MEANS OF FINANCE

2. COST OF PROJECT
COST OF
PROJECT
Land & Site
Development
Building and
civil works
Plant &
Machinery
Technical know-
how and Eng.
Fees
Expenses on
foreign
technician
Miscellaneous
fixed assets
Preliminary
and Capital
issues
Pre-operative
expenses
Margin money
for working
capital
Initial cash
losses

3. Contd…
 LAND AND SITE DEVELOPMENT: it is sum of following:
- basic cost of land including conveyance and other allied charges
- premium payable on leasehold and conveyance charges
- cost of levelling and development
- cost of laying approach and internal roads
- cost of compound wall and gates
- cost of tube wells
 BUILDINGS AND CIVIL WORKS: it covers the following:
- building for the main plant and equipment
- building for auxiliary services like steam supply, workshops, laboratory etc.
- godowns, warehouse and open yard facilities
- non-factory buildings like canteen, guest houses, time office, excise house
etc.
- quarters for essential staff
- garages etc.

4. Contd….
 PLANT AND MACHINERY: it consist of following:
- cost of imported machinery
- cost of indigenous machinery
- cost of stores and spares
- foundation and installation charges
 TECHNICAL KNOW-HOW AND ENGG. FEE : Often it is necessary to engage
technical consultants or collaborators from India or outside countries for
advice and help in various technical matters.
 EXPENSES ON FOREIGN TECHNICIANS AND TRAINING TECHNICIANS
ABROAD: Services of foreign technicians may b required, so the expenses
incurred on their travel, boarding and lodging must also be included.

5. Contd….
 PRELIMINARY AND CAPITAL ISSUE EXPENSES: Expenses incurred
for identifying the project, conducting the market surveys, preparing the
feasibility reports, drafting the memorandum and article of association, and
incorporating the company are referred to as preliminary expenses. Expenses
in connection with raising of capital are referred to as capital expenses.
 PRE-OPERATIVE EXPENSES: it include expenses like:
- establishment expenses
- rent, rates, and taxes
- travelling expenses
- interest and commitment charges on borrowing etc.
 PROVISION FOR CONTINGENCIES: Unforeseen expenses and price increases
over and above the normal inflation.

6. Contd….
 MARGIN MONEY FOR WORKING CAPITAL: A certain part of the
working capital requirement has to come from long-term sources.
 INITIAL CASH LOSSES: Most of project incur cash losses in the initial years.

7. MEANS OF FINANCE
MEANS
OF
FINANCE
Share
Capital
Term
Loans
Debenture
Capital
Deferred
credit
Incentive
Sources
Miscellane
ous
sources

8. Contd….
 SHARE CAPITAL: there are two types of share capital- EQUITY CAPITAL
and PREFERENCE CAPITAL.
 TERM LOANS: represents borrowings which are a very important source
provided by financial institutions and commercial banks.
 DEBENTURE CAPITAL: instruments for raising capital. There are two kinds of
debentures: NON-CONVERTIBLE and CONVERTIBLE DEBENTURES.
 DEFERRED CREDIT: Many a time the suppliers of the plant and machinery
offer a deferred credit facility under which payment for the purchase of the
plant and machinery can be made over a period of time.

9. Contd….
 INCENTIVE SOURCES: the government and its agencies provide financial
support an incentive to certain types of promoters or for setting up industrial
units in certain locations.
 MISCELLANEOUS SOURCES: a small portion of the project finance may come
from miscellaneous sources like unsecured loans, public deposits, and leasing
and hire purchase finance.