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Financial & Economic Analysis Flashcards

7 cards from real CP3P practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial & Economic Analysis flashcards as text

  1. What is the main purpose of an affordability analysis in a PPP appraisal?

    Answer: To confirm the government can meet long-term payment commitments within its budget constraints

    Affordability analysis checks whether projected government payments fit within available current and future budgets.

  2. A project has a positive economic NPV but a negative financial NPV. What does this usually indicate?

    Answer: The project benefits society but needs public support, such as availability payments or viability gap funding, to attract private investors

    Positive economic but negative financial NPV means the project creates social value but cannot cover costs from its own revenues.

  3. Viability gap funding (VGF) in a PPP refers to:

    Answer: A capital grant or subsidy that bridges the shortfall making an economically justified project financially viable

    VGF is public funding that closes the gap between a project's financial returns and what investors need.

  4. Gearing in a PPP project company refers to:

    Answer: The proportion of debt relative to equity in the capital structure

    Gearing is the debt-to-equity mix, and PPPs often use high gearing such as 80:20 or 90:10.

  5. Why do higher gearing levels tend to lower a PPP bid price?

    Answer: Debt is generally cheaper than equity, lowering the overall cost of capital

    Senior debt requires lower returns than equity, so more debt lowers the blended financing cost passed into the bid.

  6. A refinancing gain in a PPP occurs when:

    Answer: Better debt terms after construction increase equity returns, and contracts often require sharing this gain with the government

    Refinancing gains come from improved debt terms once construction risk has passed, and PPP contracts often require sharing them with the public authority.

  7. In a cost-benefit analysis, a shadow price is used to:

    Answer: Value inputs or outputs at their true opportunity cost to society when market prices are distorted

    Shadow prices replace distorted market prices with economic opportunity costs in economic appraisal.