Project financing has grown in popularity and monetary volume over the last five years, partly because of the budget cut backs in major oil companies, and partly because of the attractive terms offered by the, lending institutions. Many companies mistakenly view project financing as a lower cost source of funds, making previously marginal prospects justifiable using standard evaluation procedures. The costs and risks to the borrower are illustrated in this paper, and shown to be much larger than typically incorporated into most evaluations. A methodology is developed and illustrated to incorporate cost/risk consequences into the project financing decision.

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