CCIFP Construction Project Financing and Capital Structure

Question 1

Which type of construction loan is disbursed in stages as project milestones are completed?

Accepted Answer

Draw loan (construction draw)

Answer

Term loan

Answer

Revolving credit facility

Answer

Mezzanine loan

Question 2

The debt-to-equity ratio for a construction company is calculated as:

Accepted Answer

Total debt divided by total shareholders' equity

Answer

Total liabilities divided by total assets

Answer

Long-term debt divided by net income

Answer

Current liabilities divided by current assets

Question 3

What is the primary purpose of a construction company's line of credit (LOC)?

Accepted Answer

To manage short-term working capital and cash flow gaps

Answer

To finance long-term equipment purchases

Answer

To fund owner equity distributions

Answer

To refinance long-term debt

Question 4

In construction finance, 'overbilling' creates a balance sheet liability known as:

Accepted Answer

Contract liabilities (billings in excess)

Answer

Contract assets

Answer

Retainage receivable

Answer

Deferred revenue from operations

Question 5

Which financial metric do construction lenders most commonly use to assess a contractor's ability to service debt?

Accepted Answer

Debt service coverage ratio (DSCR)

Answer

Gross profit margin

Answer

Return on equity

Answer

Working capital turnover

Question 6

A construction company's weighted average cost of capital (WACC) represents:

Accepted Answer

The blended required return across all sources of financing

Answer

The average interest rate on all outstanding loans

Answer

The cost of equity financing only

Answer

The prime rate plus a risk premium