Which of the following best describes project finance?

Project finance is best described as a method of financing that focuses on the future cash flows generated by the project itself rather than relying on the balance sheets of the project sponsors or their personal guarantees. This approach is particularly common in large infrastructure and energy projects, where the revenue generated from the project's operations is anticipated to cover the financing costs.

Investors and lenders assess the feasibility of a project primarily based on its expected cash flows, which allows them to make decisions on funding without heavily depending on the financial stability of the companies involved. This makes project finance an attractive option for big ventures with significant upfront costs but strong revenue potential over time.

The other options do not accurately reflect the principles behind project finance. Extensive collateral and personal guarantees are more aligned with traditional lending practices, where lenders seek assurance in case of default. Maximizing tax deductions relates to tax strategy rather than the core funding mechanism of a project. Thus, the description that focuses on future project cash flows captures the essence of project finance effectively.