Financing the Four Sectors: Companies, Households, Governments and Overseas Through Credit and Capital Markets

Abstract

Financing involves two stages:

• 1. First, project evaluation, which means calculating whether or not a proposed project is financially viable, i.e. will it, probabilistically, generate the returns that a bank lender or investors expect for the level of risk it presents? This is generally done using the discounted cash flow approach to project evaluation which in the case of a company is part of the capital budgeting process.

• 2. Second, the pooling (collection) of small savings into a unit of financing large enough to meet the needs of the project.