1451-building Financial Models
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- 1.Which of the following financial statements in a financial model details the net cash flows in order of priority in the payment scheme?
- A.
Balance Sheet
- B.
Profit and Loss (P&L) Statement
- C.
Cash Flow Waterfall
- D.
Capex Sheet
- 2.True or False: The base case in a financial model should be based on the extreme downside assumptions about revenues, costs, etc. to ensure that the equity investors will still find the project to be acceptable.
- A.
True
- B.
False
- 3.How are interest costs that are incurred during the construction phase of a project financing treated in a financial model?
- A.
Ignored because sponsors pay these interest costs each month during construction
- B.
Capitalized during the construction period, and then depreciated during the operating period of the project
- C.
Ignored because lenders always forgive these expenses once operations begin
- D.
Ignored because they are always the government’s responsibility to pay
- 4.Which of the following is a common Reserve Account that financial modelers need to incorporate in a financial model?
- A.
World Bank Reserve Account
- B.
Government Grant Reserve Account
- C.
Depreciation Reserve Account
- D.
Debt Service Reserve Account
- 5.True or False: To avoid unnecessary input errors and to increase the flexibility of a financial model, data used to estimate project revenues and opex in a financial model should be entered directly into the revenue and opex-related formulas on the P&L and Cash Waterfall worksheets, and not on the Input Data worksheet for the financial model.
- A.
True
- B.
False
- 6.What is the appropriate discount rate for computing the NPV on equity in a project financing?
- A.
Risk-free rate of return (government borrowing rate)
- B.
Cost of debt
- C.
Cost of equity
- D.
Weighted average cost of capital
- 7.Assume a project has an EBIT/Total Asset ratio that exceeds the cost of debt for the project. What will happen to the ROE and IRR on Equity for this project as the Debt/Total Asset ratio is increased?
- A.
Both ROE and IRR on Equity will decrease
- B.
Both ROE and IRR on Equity will increase
- C.
ROE will increase and IRR on Equity will decrease
- D.
Both will be unaffected
- 8.When a financial model has uneven time periods, the IRR on equity can best be determined with which of the following Excel functions?
- A.
=IRR
- B.
=PMT
- C.
=XIRR
- D.
=RATE
- 9.Which of the following financial measures or ratios from a financial model would a potential lender to a project financing scrutinize?
- A.
Debt service coverage ratio
- B.
Loan life service ratio
- C.
Project life service ratio
- D.
All of the above
- 10.What is the final residual cash flow which has the lowest priority on the cash flow waterfall?
- A.
Funding of the O&M reserve account
- B.
Interest payments to lenders
- C.
Dividends to shareholders
- D.
Funding of the MMRA
- 11.The IRR on Equity for a project represents:
- A.
The expected rate of return on the equity investment for a project
- B.
The expected rate of return on the total investment for a project
- C.
The required rate of return on the entire investment for a project
- D.
None of the above
- 12.
- A.
The higher the cost of capital, the higher the NPV
- B.
The higher the cost of capital, the lower the NPV
- C.
There is no relationship between the project cost of capital and NPV
- 13.All else equal, as you increase the debt ratio for a project, what will happen to the Debt Service Cover Ratio, DSCR?
- A.
DSCR will increase
- B.
DSCR will decrease
- C.
DSCR will not be affected
- 14.The retained earnings for a project was $500 in 2013. The expected net income for the project in 2014 is $100 and the $70 in dividends are expected to be paid to the common shareholders. What is the expected retained earnings in 2014?
- A.
$630
- B.
$600
- C.
$570
- D.
$530
- 15.
- A.
Increase the interest rate on the loan
- B.
Increase the term of the loan
- C.
Increase the debt ratio for the project
- D.
None of the above
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