Question

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. O False O True Consider the following two statements: Statement A Statement B Managers will be more willing to take on large, Managers become less willing to take on large, risky projects if they raise capital through project risky projects if they need to raise capital through financing and if the project does not drastically project financing and if the project does not affect the company's performance if the project drastically affect the company's performance if the fails. project fails Based on your understanding of project financing, which of the following statements is true? Statement A O Statement B

Answer 1

True: The reason managers are willing to take on project financing is because they don't affect the non-project assets. thus the risks involved or if the project fails, there will be no overall effect in the company's other assets

Statement A: Similar to the reason in the first option, the managers try to take risky projects that show potential for high returns given the fact that they won't affect the company's other assets and thus the overall company's performance.