12. Project financing
Aa Aa
Project financing is a financing technique in which large projects, such as infrastructure projects, natural resources
projects, pipelines, energy explorations projects, and so on, are financed by a lead sponsor for the project. The
financier expects to receive payments based on the cash flows generated from the project itself. The Eurotunnel,
which runs between Great Britain and France, is an example of a project financed using this technique.
True or False: Project financing insulates a firm's nonproject assets from the risks involved in the project being
financed.
False
True
Consider the following two statements:
Statement A
Managers will be more willing to take on large,
risky projects if they raise capital through project
financing and if the project does not drastically
affect the company's performance if the project
fails.
Statement B
Managers become less willing to take on large,
risky projects if they need to raise capital through
project financing and if the project does not
drastically affect the company's performance if the
project fails.
Based on your understanding of project financing, which of the following statements is true?
Statement A
Statement B