Project Finance - Lecture 8

Maximizing debt/equity ratio ...

• pushes break-even point earlier

• pushes break-even point later

• has no impact of break-even point

A bank has assigned a high debt service coverage ratio (DSCR) to a project. The bank is likely to assign a ... debt/equity to this project.

• High

• Low

Which would lead to an increase in NPV/IRR for investors?

• Delay loans and pay investors earlier

• Use depreciation earlier

• Increase debt/equity ratio

• All of above

Lenders prefer

• Higher debt/equity ratio

• Lower debt/equity ratio

When maximizing dividends in financial model:

• NPV approaches zero

• IRR approaches MARR

• Both are true

• None is true