1451-building Financial Models

15 Questions

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Building Quizzes & Trivia

Questions for Building Financial Models Course.


Questions and Answers
  • 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