Corporate finance and project finance approach

  1. Discuss the key differences between corporate finance and project finance approach to fund capital projects. In your discussion, explain the advantages and disadvantages of project finance over corporate finance in funding capital projects.
  2. Explain why Debt is cheaper than Equity. Since debt is cheaper, should firms have 100% debt and no equity? Is there an optimal capital structure that gives the lowest cost of capital? Discuss.
  3. A portfolio is a grouping of financial assets such as stocks, bonds and cash. Prudence suggests that investors should construct an investment portfolio in accordance with risk tolerance and investing objectives. Discuss the followings in relation to portfolio and risks: a. How is the riskiness of a portfolio measured? b. What would happen if we added more and more assets to the portfolio? c. If we added enough assets to a portfolio, can we eliminate risk?

Sample Solution