When it comes to choosing a structure and funding - which statements are correct (select all that apply).

Question

BlackTom AI · Accepted Answer

Context: The question asks about different funding structures and which statements are correct when choosing a structure and funding, considering project finance vs. corporate (parent) financing.
Option 1: 'Parent company can borrow the money directly from the bank and then invest in a project finance - but then they are fully liable for repaying it' This describes a scenario where the parent company uses a standard corporate loan to fund a project. In that case, yes, the parent bears full liability for repayment of that loan. It’s not a project-finance (non-recourse) structure, but it is a valid statements about a funding option where liability rests with the parent. Therefore, this statement correctly reflects the liability setup in a corporate-finance arrangement. 
Option 2: 'Project finance company can directly borrow the money from a lender - they will get lower rates as the parent company will be liable for repayment if anything goes wrong with the project' In project finance, the loan is typically non-recourse to the parent (the project company is responsible, not the parent), and lenders usually price accordingly for higher project risk. The assertion that rates would be lower because the parent is liable is inaccurate; in fact, parent liability is usually limited or non-existent in project finance. This makes the statement incorrect on both recourse and pricing grounds. 
Option 3: 'Project finance company can directly borrow the money from a lender - but the fees and interest rate will be higher as the lender has to take on a higher risk than with corporate finance' This aligns with the standard understanding of project finance: the financing is typically more complex, with higher risk due to project-specific risks, limited recourse, and greater structuring needs. As a result, fees and interest rates are generally higher than in straightforward corporate finance. This statement is correct. 
Option 4: 'Parent company can borrow the money directly from the bank and then invest in a project finance - if the project fails they do not have to repay it' This describes a non-recourse (or limited-recourse) project-finance outcome, but it incorrectly assigns non-liability to the parent when the parent has borrowed directly. If the parent borrows and uses the funds for a project, the parent remains liable for repayment of that loan. This makes the statement false because the repayment obligation does not vanish if the project fails. 
Summary: Option 1 correctly captures a corporate-finance scenario with full liability on the parent. Option 2 misstates recourse and pricing in project finance. Option 3 correctly states that project-finance loans tend to carry higher fees and interest due to higher risk. Option 4 incorrectly claims non-recourse liability for a parent-loan scenario.

PMGT2850 (ND) Class Quiz 3

When it comes to choosing a structure and funding - which statements are correct (select all that apply).

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