PROJECT FINANCE

The British Petroleum Wind Energy Project

The British Petroleum Wind Energy Project

Introduction

The British petroleum wind Energy projected is expected to be profitable on the basis of its Net present value and internal rate of return. The next step for the project manager is to design a cost effective financial strategy for the proposed project. Financial plan is always devised by considering the objectives in three time periods. First is the immediate objective of the firm which is to generate cash for the operation and working capital. Next is the medium term objective which is to generate profits on ongoing basis. Finally, the long term goal is to maximize the value of the company, the value of the investment of its shareholders and minimizing the cost of capital. Different plans should be developed for the funds needed in the construction period and in the long term.

Financing Strategy for the Project

The financial manager must design a strategy by incorporating all the available information and aligning it with the company's objective. The strategy must address two aspects of financing: Construction period financing and Long term financing. Working capital loan and asset based financing is recommended for the construction period. However, issuance of bond and equity by maintaining the existing debt equity ratio is advised for long term financing. The company should grow on the basis of sustainable growth rate which will allow it to obtain external financing by maintaining the set capital structure (Finnerty, 2007).



Modes of Financing

Financing can be obtained in two manners: Asset backed financing and traditional portfolio financing. In order to recommend one for the proposed project, it is imperative to understand these concepts.

Asset Backed Financing

Asset Based financing is a form of financing in which the investors secure their loan by different assets of the company including accounts receivables, fixed assets, raw materials etc. it is recommended for start-up companies or those with high debt ratio. It is a working capital financing formula that works like a credit line and quickly frees all the existing value in customer accounts mainly stocks. The banks that offer asset based financing may take two approaches: they may offer loan by keeping real time assets of the company as collateral. Another option is that they buy the products required by the investor and engage in a sales transaction. In this way, they earn in terms of premium selling price (Zhang, 2004).

Traditional Portfolio ...