Week 1

Question 1

Economic infrastructure

Answer 1

Internal facilities of a country that make business activity possible, such as communication, transportation, and distribution networks, financial institutions and markets, and energy supply systems.

Question 2

Social infrastructure

Answer 2

a subset of the infrastructure sector and typically includes assets that accommodate social services. As set out in the table below, examples of Social InfrastructureAssets include schools, universities, hospitals, prisons and community housing.

Question 3

Funding definition

Answer 3

–What are the revenues generated by the infrastructure?

–Notion of “underlying cash-flows”

–Depends on the revenue model (more on this in next course)

Question 4

Financing definition

Answer 4

• How will the investment cost of the infrastructure be financed?
• Sources of finance:
  
  • Investment grants
  • Equity
  • Debt
• Bank loan
• Bond
• Hybrid instruments

Question 5

SPV definition

Answer 5

A special purpose vehicle/entity (SPV/SPE) is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt. An SPV/SPE is also a subsidiary corporation designed to serve as a counterparty for swaps and other credit sensitive derivative instruments. Although the SPVs/SPEs are used to isolate financial risk, due to accounting loopholes, these vehicles may become a financially devastating way for CFOs to hide debt, as with the Enron bankruptcy.

Question 6

Corporate finance

Answer 6

In organization where corporate finance is practiced, the objective of practicing it is to maximise the wealth of the shareholders. Corporate finance mainly deals with the sources of funds and how the optimum capital structure will be achieved.

Question 7

Project fianance

Answer 7

It is useful in cases where the finance is required in case of a large industrial or renewable energy project. Project finance is used to finance the project in sequential process. The whole amount is not invested upfront.

Question 8

A sponsor (the entity requiring finance to fund projects) can choose to finance a new project using two alternatives:

Answer 8

1. The new initiative is financed on the balance sheet (corporate financing)
2. The new project is incorporated into a newly created economic entity, the SPV, and financed off balance sheet (project financing)