Project Finance Quiz (Chapter 1)

Financing projects primarily depends on:

• Corporate balances of sponsors

• Government guarantees

• Project's own cash flows

• Credit ratings of shareholders

• Capital markets

A legal entity created for the purpose of financing a project is usually called:

• Holding company

• Subsidiary

• Special Purpose Vehicle (SPV)

• Joint Venture Agreement

• Syndicated Corporation

What **is not** a defining feature of project financing?

• Separate SPV

• Cash flows as a source of loan repayment

• Limited liability of sponsors

• Dependence on pledged corporate assets

• Risk distribution through contracts

Project financing differs from corporate financing mainly because:

• Only equity financing is used

• It focuses only on long-term infrastructure

• Debt repayment depends on the project's cash flows

• Sponsors always retain full responsibility

• Governments always act as guarantors

In project financing, the assets of an SPV are considered:

• Secondary collateral

• Irrelevant

• Main source of repayment

• Corporate guarantees

• Government securities

The main reason for financing projects is:

• Reducing project risk for creditors through sharing

• Unlimited liability of sponsors

• Avoiding private sector participation

• Increasing speculative investments

• Replacing all public procurement methods

What is one of the advantages for sponsors?

• Off-balance sheet processing reduces contamination risk

• Guaranteed government subsidies

• Higher WACC compared to corporate financing

• No need for risk distribution

• Avoidance of all market risks

Creditors benefit from financing projects because:

• They rely solely on government credit ratings

• They have direct access to all sponsors

• They can separately control the cash flows of the project

• They completely avoid all risks

• They earn higher fees than in corporate loans

The key difference between corporate loans and project financing loans is that in project financing:

• Loan approval depends on the sponsor's reputation

• Loan approval depends on the project's cash flow forecasts

• Loans are always unsecured

• Equity must exceed debt

• Risk transfer is not possible

What aspect of financial theory supports the use of project financing for large risky projects?

• Avoidance of pollution risk

• Hedging against inflation

• Shadow banking

• Capital segmentation

• Speculative arbitrage