Teaching Project Finance: An Overview of the Large-Scale Investment Course

Benjamin C. Esty

Module Note | April 2002 (Revised February 2003)

Teaching Project Finance: An Overview of the Large-Scale Investment Course

Abstract

Large-Scale Investment is a case-based course about project finance 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 2001, firms financed almost $220 billion worth of capital expenditures through project companies, an amount that has grown and will continue to grow rapidly in the years ahead. 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 various aspects of project structure affect managerial incentives to create value and manage risk. Ultimately, students learn how to increase value through both investment and financing choices. This note describes the course's key themes, structure, and content. Designed for educators interested in teaching a course on project finance. The material described in this note can also be used to create a module in an existing course on corporate finance, international finance, or financial institutions or to create courses on emerging market corporate finance, risk management, and energy finance.

Keywords: Projects; Financing and Loans;

Format: Print

36 pages

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Citation:

Esty, Benjamin C. "Teaching Project Finance: An Overview of the Large-Scale Investment Course." Harvard Business School Module Note 202-086, April 2002. (Revised February 2003.)

Teaching Note | HBS Case Collection | April 2019

The a2 Milk Company

Benjamin C. Esty and Daniel Fisher

The a2 Milk Company (a2MC) became the most valuable company listed on the New Zealand stock exchange in 2018 by capitalizing on a biochemical discovery related to the protein composition of cow's milk. Because many people find the A1 protein difficult to digest, and that protein may be related to other health problems (e.g., diabetes), a2MC sells dairy products containing the A2 protein only primarily in Australia and China. With sales of NZ$730 million in 2017 and a desire to grow, a2MC formed a strategic relationship with Fonterra, the world's sixth largest dairy company, in February 2018. But one month later, Nestle, the world's largest dairy company, confirmed that it had begun selling A2 infant formula in China and people speculated that it would start selling A2 products in Australia and New Zealand later in the year. a2MC's retiring CEO Geoffrey Babidge and newly appointed CEO Janyne Hrdlicka must decide how to respond to Nestle's entry. Can this successful entrant become an incumbent with a sustainable competitive advantage?

Keywords: Judo economics; Market entry; innovation; barriers to response; industry attractiveness; advantage horizon; sustainability; first-mover advantage; scope; strategy execution; strategic evolution; biochemistry; genetics; branding; commodity; milk; Dairy; infant formula; Farming; Porter's Five Forces; Market Entry and Exit; Disruption; Innovation and Invention; Competitive Advantage; Corporate Strategy; Value Creation; Competition; Brands and Branding; Five Forces Framework; Consumer Products Industry; New Zealand; Australia; China;

Citation:

Esty, Benjamin C., and Daniel Fisher. "The a2 Milk Company." Harvard Business School Teaching Note 719-428, April 2019. View Details

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In August 2017, MoviePass dramatically lowered its subscription price from $50 per month to just $10 for up to one movie per day. The idea was to rapidly scale the business to the point where they could generate incremental revenue streams from related businesses (e.g., a share of ticket and concession revenues from theaters, advertising revenue from movie studios, and revenue from ride-sharing companies). Within two days, Moviepass had gotten 150k new subscribers; within six months, they had more than 2 million. But as of February 2018, the company faced three challenges: theaters were resisting the concept, investors were shorting the stock in record numbers, and competitors were beginning to appear. Could CEO Mitch Lowe convince investors that they did, indeed, have a viable business model and could monetize their growing subscriber base? At the same time, Lowe had to decide whether to raise subscription prices to cover the growing losses or keep prices low to attract subscribers as quickly as possible.

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Teaching Project Finance: An Overview of the Large-Scale Investment Course

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