Project Financing

Posted in Finance, Accounting and Economics Terms, Total Reads: 683
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Definition: Project Financing

Infrastructure projects and industrial projects are capital intensive projects. For the construction of a new factory or purchase of a new machine requires a huge amount of investment on part of the company. Such a huge investment cannot be financed through a company’s cash reserve alone.

For such investment company takes loan from external market. This loan can be in the form of debt instruments such as bonds or in the term of issuance of equity shares.

Before granting the loan it is determined whether the future cash flows generated from the project will be sufficient enough to cover the loan. The different method to determine this are

• Net Present Value

• Internal Rate of Return

• Payback period

This whole process is known as project financing.

 

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