Lesson 8 Homework

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Accounting

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Feb 20, 2024

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Lesson 8 Homework TEAM - 8 RJ LEWIS AND RAMEY LITTLE
1. Discuss the role of project accounting in project financial management. 2. Explain the difference between ‘Financing a Project’ and ‘Project Finance’. 3. What are the differences between debt financing and equity financing? “Debt financing refers to money borrowed from a number of sources, including banks” (Venkataraman & Pinto, 2023). We can also see the verbiage of senior debt to be referred to as debt financing in organizations too. Debt financing is important to the investor because in the case of a company not performing and needing liquidation of its assets, the investors of the debt financing or senior debt are the first to obtain their assets from the company. “ Debt financing can be riskier if you are not profitable as there will be loan pressure from your lenders” (Maverick, 2023). The reasons why a company would choose debt financing is because “a business owner does not give up any control of the business as they do with equity financing” (Mavrick, 2023). “Equity financing refers to the money subscribed by investors and shareholders, whose returns on investment are in the form of dividends and capital growth equivalent to the value of their equity in the project organization” (Venkataraman & Pinto, 2023). From an investor’s perspective, we see payment to them to be “only after the interest and scheduled loan repayment obligations have been met” (Venkataraman & Pinto, 2023). The reasons why a company would choose to utilize equity financing “is that there is no obligation to repay the money acquired through it” (Mavrick, 2023). Understanding the difference between the two financing models, “Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company” (Mavrick, 2023). Knowing which type of finances businesses should go with all “depends on your business goals, tolerance for risk, and need for control” (Maverick, 2023). To also consider that “debt financing can be riskier if you are not profitable as there will be loan pressure from your lenders. However, equity financing can be risky if your investors expect you to turn a healthy profit, which they often do” (Maverick, 2023). 4. What are the various sources of finances for a project and which ones does your company most frequently use? Why? When it comes to the various sourcing for projects, we see that it all depends on the company structure and the complexity of projects. From the insurance industry as a large corporation, we have large complex projects that can take up to several months or years to complete. We see these projects to have “nonrecourse or limited-recourse financing (project finance)” (Venkataraman & Pinto, 2023). The reason behind these are because we have
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