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14.29. PROJECT FINANCING2

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[] Project financing is a relatively new topic and is now being taught in graduate programs in business. At Harvard University, it is taught as a course entitled Large Scale Investment by Professor Benjamin C. Esty. Many excellent examples appear in Professor Esty's text, Modern Project Finance (Hoboken, NJ: Wiley, 2004).

Project financing involves the establishment of a legally independent project company, usually for large-scale investments (LSI) and long term where the providers of funds are repaid out of cash flow and earnings, and where the assets of the unit (and only the unit) are used as collateral for the loans. Debt repayment would come from the project company only rather than from any other entity. A risk with project financing is that the capital assets may have a limited life. The potential limited life constraint often makes it difficult to get lenders to agree to long-term financial arrangements.


  

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