Teaching Interest

Large-Scale Investment (LSI, MBA Elective Curriculum)

by Benjamin C. Esty

Description

Large-Scale Investment (LSI) is a case-based course about project finance that is designed for second-year MBA students. Project finance involves the creation of a legally independent project company financed with nonrecourse debt for the purpose of investing in a single purpose industrial asset. In 2011, firms financed almost $400 billion worth of capital expenditures through project companies, an amount that has grown and will continue to grow rapidly in the years ahead. As the name implies, the course focuses primarily on large projects those costing $500 million or more because they provide a clear window on how managers make important structural decisions and how those decisions, in turn, affect firm value and performance. At the same time, large projects often encounter financial distress witness EuroTunnel, EuroDisney, Dabhol, and Iridium, yet are critical to economic growth and prosperity in both developed and developing markets.

The central theme of the course is that structure matters, which stands in sharp contrast to the neoclassical view of the firm as a black box production function and the assumption underlying Modigliani and Miller's first irrelevance proposition that financing and investment are separable and independent activities. Through this course, students learn how structure affects managerial incentives to create value and manage risk. Ultimately, students learn how to increase value through both investment and financing choices.

Keywords: project finance; corporate finance; Corporate Governance; Valuation; Capital Budgeting;