BP Amoco $($A$)$: Policy Statement on the Use of Project Finance

Assignment Questions

$1)$ What is project finance and how does it differ from corporate finance? Review case exhibit $6$A$,6$B$,$ and $6$C as you answer this question.

$2)$ According to Bill Young and his team, when should BP Amoco use project finance?

$3)$ How and why does project finance create value? Hint: Think in terms of market imperfections. What are the costs associated with taxes, financial distress, information, incentives conflicts $($agency$),$ transaction, etc., and how does project finance increase or decrease the costs associated with these imperfections.

$4)$ Do you agree with the recommended policy? Which parts? Is anything missing?

$5)$ Study Exhibit $7.$ How is project finance like holding a portfolio of call options on project assets? How is corporate finance like holding a call option on a portfolio of assets?