2.1  Sources of Capital 

The capital structure of a project is not static and different sources can be used at different times during the project cycle.  Furthermore, different sources of capital have different characteristics and a different risk/return profile based on their claim to assets.  As seen in Figure 2 - 1, debt capital is 'cheaper' than equity as it is less risky than equity due to the fact that debt holders have a prior claim to revenue and assets and debt financing has covenants governing some of management's actions.

Figure 2 - 1
Claim to Assests